Home sale deals are collapsing at six times expected levels and setting up the worst jobs bloodbath in years – but Uncle Sam is still sending mixed signals when it comes to cutting interest rates.
Agonized investors reacted by dumping stocks yesterday, causing another worldwide stock sell-off.
The Dow Jones industrial average dropped 143.39, or 1.07 percent, to 13,305.47, and the Standard & Poor’s 500 Index lost 17.13, or 1.15 percent, to 1,472.29. Nasdaq fell 24.29, or 0.92 percent, to 2,605.95.
The dollar plunged against other major currencies, largely from the most dismal report yet during the housing meltdown.
The report said pending home sale contracts for July fell 12.2 percent – the steepest toll on record at the National Association of Realtors, which tracks the data. Economists had expected a drop of just 2 percent.
Stocks of big banks also got clobbered on downgrades and fears they’ll suffer deeper losses tied to the mortgage crisis. Lehman Brothers tumbled $2.11 to $54.35, Morgan Stanley lost $1.37 to $62.56 and Citigroup fell $1.21 to $46.
Meanwhile, a Federal Reserve report said there’s been too much worry over the crisis of shoddy mortgages, and that the broader economy is still growing with signs of health.
The Fed said housing’s damage to the broader economy would be “limited,” dimming hopes among many market-watchers that the Central Bank would step in to cut interest rates for the first time in four years on Sept. 18.
A rate cut could help arm the economy with cheaper money again to ease the run on Wall Street – but a rate cut also could unleash the monster of inflation.
Some economists believe the collapse of home sale deals will worsen for August and beyond.
“There’s still a lot of pain that’s ahead of us,” said Joel Naroff, chief economist for Commerce Bancorp.
Even a top Treasury official disputes the Fed’s downplaying of the housing crisis impact on the economy.
“The process is far from over,” Robert Steel, a Treasury undersecretary, told a House panel. “The ultimate impact of these events on the economy has yet to play out.”
A separate jobs report from Challenger Gray & Christmas said losses in August soared 85 percent in just one month to nearly 80,000 – the steepest one-month bloodbath since the consulting firm began tracking the data 15 years ago.
Half the lost jobs were in the mortgage industry, but layoffs could spread across the economy to break the annual jobs loss record of 116,515 set in the recession of 2001, the report said. paul.tharp@nypost.com