Friday, July 25, 2008

U.S. Economy: Orders Up, Home Sales Beat Forecasts (Update1)

By Courtney Schlisserman and Timothy R. Homan

July 25 (Bloomberg) -- Orders for U.S. durable goods unexpectedly rose in June, and sales of new homes were higher than forecast, easing concern that the economic slowdown will worsen.

Bookings for goods made to last several years gained 0.8 percent and posted the first consecutive monthly rise since July 2007, the Commerce Department said today in Washington. New homes sold at an annualized pace of 530,000, exceeding the median forecast of 503,000 in a Bloomberg News survey. A private report showed consumer sentiment rose from a 28-year low.

Stocks rose and Treasuries fell after the reports indicated the economy accelerated in the second quarter from the weakest pace of growth in five years. Economists had forecast that the slowdown would worsen by year-end as the impact of tax rebates fades and as job losses and rising consumer prices force households to cut spending.

``At the end of the day, we are going to avoid a severe recession,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut.

The Reuters/University of Michigan final index of consumer sentiment increased to 61.2 in July from 56.4 in June. The measure averaged 85.6 in 2007 and is up from a preliminary reading of 56.6 in early July.

Stocks, Treasuries

The Standard & Poor's 500 Stock Index gained 0.4 percent to close at 1,257.76 at 11:24 a.m. in New York. Benchmark 10-year note yields rose to 4.10 percent at 4:45 p.m. in New York from 4 percent late yesterday.

The rise in durable-goods orders compared with the median forecast for a 0.3 percent drop in a Bloomberg News survey of 78 economists.

``It's consistent with modest economic growth,'' Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Radio interview. ``It does support the notion that GDP growth in the second quarter was pretty solid,'' he said, referring to gross domestic product.

Record exports, fueled by a weakening dollar and economic expansions abroad, are helping U.S. factories withstand the housing slump and slowing demand at home.

Caterpillar Inc., the world's largest maker of earthmoving equipment, said July 22 that demand in China and the Middle East helped its second-quarter profit surge 34 percent.

GDP Impact

Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, climbed 1.4 percent after a 0.1 percent decrease in May. Shipments of those items, which is a figure used in calculating gross domestic product, increased 0.7 percent following a 0.2 percent gain.

Morgan Stanley economists raised their forecast for second- quarter GDP growth to 2.4 percent from 2.2 percent after the durable-goods report.

The government is scheduled to release its advance second- quarter growth estimate on July 31. Economists surveyed by Bloomberg forecast the economy expanded at a 2 percent pace from April through June as exports grew and consumer spending rebounded on the tax rebates mailed.

Economists forecast new-home sales would decline to a 503,000 pace, from a previously reported 512,000 for May, according to the median of 75 projections.

The number of properties on the market dropped by the most in four decades, indicating builders are making some headway in clearing out inventories.

The median sales prices last month decreased 2 percent from June 2007 to $230,900. These figures can be influenced by changes in the mix of sales at the regional level. For that reason, economists prefer price measures that track the same home over time.

Drop in Supply

The supply of homes at the current sales rate fell to 10 months' worth from 10.4 months in May. There were 426,000 homes for sale at the end of June at an annual pace, the fewest since December 2004. The figure was down 5.3 percent from the prior month, the biggest decline since November 1963.

A report yesterday from the National Association of Realtors showed existing home sales fell 2.6 percent to a 4.86 million annual rate, the lowest level in a decade. The median home price dropped 6.1 percent from June of last year.

Concern over the ability of Fannie Mae and Freddie Mac, the largest U.S. purchasers of mortgages, to survive the meltdown in subprime lending has heightened the credit crisis and may push up mortgage rates and further curtail access to loans.

U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

Loss at Pulte

Pulte Homes Inc., the third-largest U.S. homebuilder, this week reported a second-quarter loss of $158.4 million.

``We see no immediate signs of this housing downturn relenting,'' Pulte Chief Executive Officer Richard Dugas said yesterday on a conference call with analysts.

The gains in today's durable-goods report reflected increasing demand for machinery, metals, autos and defense gear.

The figures countered regional reports, which indicated manufacturing was weakening. The Federal Reserve said on July 23 that manufacturing declined in ``many'' of its 12 districts in June and July. The Fed also said the economy ``slowed somewhat'' and that all of its bank districts reported ``elevated or increasing'' price pressures.

``Manufacturers in several districts anticipated further factory weakness in the near future,'' the central bank said in its regional economic survey, known as the Beige Book for the color of its cover. ``While most districts expected stable capital spending heading forward, a few noted manufacturers' plans to reevaluate based on current economic conditions.''

Orders for automobiles increased 1.8 percent, the most since July 2007. The gain may have reflected the end of a strike at American Axle & Manufacturing Holdings Inc., the largest axle supplier for General Motors Corp. GM said June 16 it had returned to full production.

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