New Homes, Budget Cuts, Oil

New home sales took a dive in January, while Goldman Sachs came out with a report predicting a slowdown in U.S. growth due to budget cuts and prospects for an oil crisis.

Courtesy Flickr Creative Commons user Diana Parkhouse

New home sales took a dive in January–a seasonally adjusted dive at that, meaning that the blizzards that hit the nation last month aren’t going to take the blame for driving sales downward. According to the U.S. Department of Commerce, during the first month of 2011 new homes sold at an annualized rate of 284,000.

Compared with December, that’s a 12.6 percent drop from 325,000 units. Compared with January of 2010, the drop was 18.6 percent, but then again, the new homebuyer tax credit was still active at that time.

Should the January sales rate hold for the rest of the year, 2011 would prove to be even worse for the homebuilding industry than 2010, when 322,000 new homes sold, the lowest total since the Commerce Department started tracking such sales during the Kennedy administration. A rule of thumb for a healthy new housing sector (in our time) is about 600,000 units sold annually, so it seems that the market is still in the intensive care ward.

Goldman Sachs Predicts Budget Cuts Would Slow U.S. Growth

A Goldman Sachs study on the proposed federal budget cuts, released on Thursday, asserted that such cuts would eat into the economy’s recovery. The study estimates that the House cuts voted on last week, if enacted, would shave 1.5 to 2 percentage points off U.S. GDP growth during the second and third quarters. Various estimates made recently put 2011 GDP growth at 3 percent, 3.5 percent or even more, if the economists are feeling optimistic.

Naturally, both parties latched on to the study with great speed. Republicans derided it. Democrats held it up as evidence that the Republican plan would be foolhardy.

The report also touched on the economic impact of a federal government shutdown, something that could happen if Congress doesn’t agree to continue to fund operations by March 4. According to the report, such a shutdown “poses less risk” than the proposed spending cuts “as long as it is brief.” Each week the federal government is shut down represents about $8 billion it doesn’t spend, not even considering any multiplier effect of that spending, the study said.

Oil Panic?

Oil bubble redux? According to a report on Thursday by the International Energy Agency, the amount of oil removed from the world market because of the recent violence in Libya is as much as 750,000 barrels a day. That might sound like a lot, but it’s actually a little less than 1 percent of worldwide consumption (85 percent of Libyan oil goes to Europe, 13 percent to Asia). The IEA, a non-governmental entity founded during the energy crisis of the ’70s, also said that its member states currently have an aggregate of about 1.6 billion barrels, or about 145 days’ supply of emergency oil stocks, on hand.

Of course, it could be argued that oil markets are only reacting rationally to the prospect of long-term disruption to Libyan supplies. On Thursday, those same markets dropped about $2 per barrel in short order for a short time on unconfirmed rumors that Col. Muammar Gaddafi had bought the farm.

Wall Street had a volatile day on Thursday, wobbling like a plate spinning on a stick. Ultimately, the Dow Jones Industrial Average lost 37.28 points, or 0.31 percent, while the S&P 500 was down 0.1 percent. The Nasdaq, however, gained 0.56 percent.