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US new-home sales slowest in 13 yr, durables unloved PDF Print E-mail
Saturday, 29 March 2008

Sales of new U.S. single- family homes fell to the slowest pace in 13 years while orders for durable goods tumbled unexpectedly last month, according to government data that added to signs the economy has stalled, reports Reuters New orders for long-lasting U.S.-made manufactured goods like refrigerators unexpectedly fell 1.7 percent during February and a key gauge of companies’ appetite for investment also shrank.

Economists said weaker business spending means the economy will probably contract more sharply than initially thought in the first quarter.

February’s drop in machinery orders was 13.3 percent, the steepest decline on record. A separate report released by the Commerce Department on Wednesday showed single-family home sales fell 1.8 percent to an annualized rate of 590,000.

That was the lowest reading since 1995, when they were 559,000, but was slightly ahead of the 580,000 forecast by analysts polled by Reuters.

There’s “a rough patch right now in our economy and I’m confident in the long term, we’ll come out stronger than ever before,” President George W Bush said.

The data raised concerns about corporate profits and pushed U.S. stocks lower, with the Dow Jones Industrial Average shedding 109.74 points, or 0.88 percent, to end at 12,422.86.

The Standard & Poor’s 500 Index lost 11.86 points, or 0.88 percent, to 1,341.13, while the Nasdaq Composite Index shed 16.69 points, or 0.71 percent, to 2,324.36. U.S.

Treasury bond prices mostly rose and the dollar recovered a bit on the housing report, but finished the session lower against most major currencies.

The home sales data followed a report on Monday showing a surprising increase in sales of pre-owned homes in February. Some interpreted the gain as a possible sign the market had reached bottom.

“We can be sort of cautiously encouraged that the trend is becoming a little less negative. I don’t think there are really any signs of a revival in the housing market. The Fed is not going to get particularly excited by these numbers,” said David Sloan, an economist at 4CAST Ltd in New York.

A global credit crisis sparked by the collapse of the U.S. subprime mortgage market has chilled the wider economy. It has forced the Fed to cut its benchmark interest rate by 3 percentage points since mid- September, and take emergency steps to thaw frozen financial markets.

The fed funds rate target, which is the rate for overnight bank loans, now stands at 2.25 percent. “The policy actions taken in March, in combination with earlier moves, should help to promote moderate growth over time and moderate the risks to economic activity,” Chicago Federal Reserve Bank President Charles Evans said in a speech to the New York Association for Business Economics.

The inventory of unsold homes fell 2.1 percent to 471,000 which, at the current sales pace, would take 9.8 months to clear and matched the months’ supply in January. In addition, the February median sales price for a new home fell 2.7 percent from the year-earlier level.

Still, the median home price rose 8.2 percent to $244,100 in February from the $225,600 of the previous month. “A correction was inevitable and the sooner we work through it, with a minimum of disorder, the sooner we will see home values stabilize, more buyers return to the housing market, and housing will again contribute to economic growth,” Treasury Secretary Henry Paulson told the U.S. Chamber of Commerce.

Adding a glimmer of hope, applications for mortgages soared nearly 50 percent last week and applications to refinance home loans jumped 82 percent as borrowers scrambled to lock in lower rates. Economists hope this is a sign that weakened house prices was starting to tempt buyers back into the market. Even so, durable goods overshadowed upbeat signs in housing and indicated broad weakness for business investment.

Analysts surveyed by Reuters forecast overall durable goods orders would rise 0.8 percent in February, rebounding from January’s revised fall of 4.7 percent. “This report further corroborates the notion that, in addition to the financial crisis, the U.S. faces a real economic downturn,” said T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York.

Nondefense capital goods orders excluding aircraft, a closely watched proxy for business spending, declined 2.6 percent after falling a downwardly revised 1.8 percent in January, the Commerce Department said. It was the biggest decline since a 3 percent drop in October and was far larger than the 0.1 percent slip forecast by economists.

Within this so-called core measure for durable goods, machinery orders tumbled 13.3 percent—the steepest decline since records began in 1992.

Inventories for durable goods, which have increased in seven of the last eight months, rose 0.5 percent in February to $324 billion, the highest since 1992. Economists said inventory building might help offset economic weakness in the first quarter, but spelled production cuts and de-stocking down the road.

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