New-Home Sales Off 10%; Factory Orders Rise 4.3%

New-home sales plunged 10.6% in November, the steepest decline in almost three years, while orders to U.S. factories for manufactured goods rose 4.3% for the same month, the government reported Thursday.

Sales of new single-family homes were put at a seasonally adjusted annual rate of 591,000 in November, the slowest sales pace since August.

New-home sales had risen 16.5% in September and 0.9% in October, prompting hopes in the depressed building industry that lower mortgage rates were once again attracting home buyers.

The November decline was the biggest since an 18.4% drop in January, 1982.

The drop surprised many housing analysts, who had been predicting an increase given the declines in mortgage rates in recent months.

Michael Sumichrast, chief economist for the National Assn. of Home Builders, said the one-month decline was not a cause for concern given the increases of the two previous months and the momentum building with the lower mortgage rates.

He said the association’s own survey has shown widespread optimism among builders about future sales.

“Traffic has improved, builders’ expectations have improved and sales have improved,” he said. “I think we will have an increase in sales in December.”

The November report on home sales was one of the few negative readings of business activity for that month, which produced a large drop in the unemployment rate and big surges in retail sales and factory production. Analysts have said the gains point to an economy that is rebounding from a four-month slowdown.

In a separate report, the Commerce Department said new factory orders, which are viewed as a good indicator of future production activity, totaled $193.8 billion in November, an increase of $8 billion from the October level.

Orders for durable goods--items expected to last at least three years--rose 7.8% in November. This was slightly lower than an initial estimate of an 8.3% rise contained in an advance report nine days ago.

The orders to U.S. factories for manufactured goods was the largest gain since a 4.6% increase in June, 1983.

About two-thirds of the increase came from a big surge in orders for military hardware, which was almost double the October rate. Even with military sales removed from the calculation, however, orders were up 1.7%.

The gain followed three consecutive monthly declines.

Orders in the key category of non-defense capital goods showed an increase of 8.2%, offsetting a decline of 8.5% in October. This category is closely watched for what it can reveal about industry plans to expand production facilities.

Orders for non-durable goods--products such as clothing, chemicals, paper and food--rose 0.6% in November following a 1.5% decline in October.

Shipments of manufactured goods rose 0.9% to a level of $192.2 billion in November. It was the biggest increase since a 1.1% jump in May.

Allen Sinai, chief economist for Shearson Lehman/American Express, said a particularly encouraging development was that the increases were widespread among the various industry groupings.

“This is an early signal that the economy is responding to lower interest rates in the fourth quarter,” he said. “It is a very positive sign for renewed growth.”

Inventories held by businesses declined 0.3% in November, the Commerce Department said, the first drop in inventories since June, 1983.

Analysts said this was also a positive sign, indicating that businesses would need to rebuild stocks in coming months as sales pick up.

“By the time we get into spring, the decline in inventories will be very positive because it will translate into some fairly substantial gains in production and employment,” predicted Michael Evans, head of Evans Economics, a private forecasting firm in Washington.

Robert Ortner, chief economist for the Commerce Department, said the inventory decline showed that businesses were being cautious and “avoiding any unnecessary pileup of inventories that they would have to unload later.”