Sunday, April 20, 2008

U.S. Home Sales May Have Fallen: U.S. Economy Preview (Update1)

By Courtney Schlisserman

April 20 (Bloomberg) -- The collapse in U.S. home sales showed no sign of ending in March, while orders from overseas helped manufacturing stabilize, economists said before reports this week.

Combined sales of new and existing homes dropped 2.5 percent last month, according to the median estimate of economists surveyed by Bloomberg News. Orders for durable goods, products meant to last several years, were probably unchanged.

The deterioration in housing that is at the center of the current credit crisis has brought the economy to a standstill and perhaps a recession. Factories, which often feel the brunt of economic contractions, have been able to keep assembly lines moving because of gains in exports.

Housing is ``the weakest part of the economy,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``With the overseas economies doing better than ours, we'll probably see decent growth'' in goods orders.

The National Association of Realtors is scheduled to release the existing-home sales report on April 22. Economists forecast sales would decline to a 4.9 million pace from 5.03 million in February, according to the survey median.

Two days later, the Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 580,000, a 13-year low.

Declining sales are prompting builders to slash construction and cut prices. Work began on 947,000 homes at an annual rate in March, less than forecast and the fewest in 17 years, the Commerce Department reported last week.

Housing's Influence

Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline last year that was the biggest since 1980.

As property values tumble and the borrowing costs on adjustable-rate mortgages reset higher, more Americans are walking away from their homes. Foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier, Irvine, California-based RealtyTrac Inc., a seller of default data, said April 14.

The report on durable goods, also due from the Commerce Department on April 24, is projected to show that orders excluding transportation equipment rose 0.2 percent, according to the Bloomberg survey.

Manufacturing reports so far this month have sent contradictory signals, with companies and regions that export faring better than those that don't.

Overseas Sales

Caterpillar Inc., the world's largest maker of bulldozers and excavators, said on April 18 that first-quarter profit exceeded analysts' forecasts as sales to Asia, the Middle East and emerging markets grew.

Overseas demand helped Peoria, Illinois-based Caterpillar even as North America was in the midst of what Chief Executive Officer Jim Owens called ``a recessionary storm.''

Industrial production improved in March, reflecting increases in output of equipment such as computers, the Federal Reserve reported last week. The gain indicated business investment may not be slowing as much as previously thought.

``No other part of the industrial sector is as hot as technology, which tells you how the tables have turned'' since the 2001 recession when capital spending plunged, David Rosenberg, chief North American economist at Merrill Lynch & Co. said in an April 16 note to clients. ``Anything related to housing and the consumer remains in downsizing mode.''

Fed View

The Fed last week said economic growth slowed in nine of 12 districts since February, hurt by ``anemic'' real estate markets and a slowdown in consumer spending, according to its regional business survey known as the Beige Book.

Policy makers have lowered the benchmark overnight lending rate between banks by 2 percentage points so far this year to keep the economy from falling into a recession.

The two-year Treasury yield rose 39 basis points, or 0.39 percentage point, to 2.14 percent last week, according to bond broker BGCantor Market Data, their biggest weekly increase since 2001, as surging stocks and signs of quickening inflation reduced the appeal of government debt.

Other reports this week are forecast to show that the number of Americans applying for jobless benefits remained elevated last week and consumer sentiment this month sank to a 26-year low.

Bloomberg Survey

Release Period Prior Median
Indicator Date Value Forecast
Exist Homes Mlns 4/22 March 5.03 4.90
Exist Homes MOM% 4/22 March 2.9% -2.6%
Durables Orders MOM% 4/24 March -1.1% 0.0%
Durables Ex-Trans MOM% 4/24 March -2.4% 0.2%
Initial Claims ,000's 4/24 20-Apr 372 375
Cont. Claims ,000's 4/24 13-Apr 2984 2985
New Home Sales ,000's 4/24 March 590 580
New Home Sales MOM% 4/24 March -1.8% -1.7%
U of Mich Conf. Index 4/25 April F 69.5 63.3

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