Housing woes in US continue, but durables perk up
Orders for durable goods in the US rose for a third month in April and home sales barely rose from a four-year low, providing fresh evidence that housing remains the economy’s weakest link, reports this week may show.
By Agencies |
WASHINGTON: Orders for durable goods in the US rose for a third month in April and home sales barely rose from a four-year low, providing fresh evidence that housing remains the economy’s weakest link, reports this week may show.
Combined sales of new and previously owned homes edged up to 6.99 million from a 6.978 million pace in March that was the lowest since 2003, according to economists surveyed. Orders for goods made to last several years probably increased 0.9% after a 4.3% jump.
Demand for business equipment and other factory goods will buffer the economy from the effects of a housing slump that’s projected to pull down growth for a seventh straight quarter. Federal Reserve chairman Ben S Bernanke said that while curbs on subprime lending will hurt home sales into 2008, housing’s woes aren’t spreading to other industries.
“Definitely housing is in a recession, and it’s possible it could get worse before it gets better,” said Nariman Behravesh, chief economist at Global Insight, in Lexington, Massachusetts. “The good news so far seems to be there is little spillover to the rest of the economy.”
Sales of new homes inched up to an 860,000 annual rate last month from 858,000 in April, a commerce department report on May 24 is projected to show. Purchases have hovered near the 836,000 pace reached in February that was the slowest since June 2000.
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A day later, the National Association of Realtors may report home resales rose last month to a 6.13 million annual rate, from 6.12 million a month earlier, according to the median forecast of the economists surveyed. A rise in mortgage defaults and increasing foreclosures among subprime borrowers, those with poor or limited credit, may prolong the worst housing slump since 1991 as lenders tighten credit standards, economists said. The Chicago-based Realtors association this month lowered its 2007 forecasts for new and existing home sales. The group also said prices of existing homes will fall more than its prior forecast, while the median price for new homes will decline this year for the first time since 1991.
Central bankers have cited escalating defaults and the slumping housing market as risks to growth, which last quarter was the weakest in four years. Curbs on subprime “lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters,” Bernanke said at a conference in Chicago on May 17.
“We are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets.” Still, Bernanke said he doesn’t foresee ‘significant spillovers’ from the subprime market to other parts of the economy or financial system.
One reason for optimism may be an improvement in business investment, as reflected by the three-straight increases in orders for new equipment. The last time the commerce department reported as many consecutive gains in orders for durable goods was from April through June 2005. Bookings excluding transportation equipment probably rose 0.6% after a 1.4% increase, the May 24 report is also forecast to show.
The increases suggest corporate investment is stabilising after slumping in the last three months of 2006. Companies succeeded in reducing excess inventories and are now in position to place more orders to replenish stockpiles,
economists said.
General Motors said this month it will invest $63 million to retool a Michigan foundry, the first of five plants switching to new casting technology, to produce engines that are more fuel-efficient. A recovery in business spending would support the Fed’s view that the economy will gain strength by year-end.
“We will see the economy strengthen” by the end of the year, Fed Bank of Kansas City president Thomas Hoenig said at a conference in Denver on May 15. As corporate investment is improving, rising wages and a jobless rate near a five-year low is supporting spending by consumers.
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First-time claims for jobless benefits unexpectedly dropped to a four-month low in the week ended May 12, suggesting the demand for workers is still strong enough to lift wages, helping workers cope with record gasoline prices. A labour department report on May 24 may show filings rose in the week ended yesterday to 305,000, a level that economists said still points to strength in the labour market, from 293,000 the prior week.Download
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