New-Home Sales Off 9.9% in June; Productivity Up 1.7%
New evidence of the sluggish pace of the nation’s economy showed up Wednesday in government reports on home sales and productivity.
The Commerce Department reported that sales of new homes fell 9.9% in June, the third consecutive monthly decline, while the Bureau of Labor Statistics reported that non-farm business productivity increased at an annual rate of 1.7% in the second quarter. However, the increase came on a slight decline in hours worked, an indication of belt-tightening by many companies.
According to the Commerce report, single-family homes sold at a seasonally adjusted annual rate of 703,000 units last month following sales declines of 11.8% in May and 4.3% in April.
Even with the declines, sales for the first six months of the year were 18% ahead of the pace in the first half of 1985, making housing one of the few bright spots in a generally sluggish economy.
Analysts said the weakness in the overall economy was beginning to affect the momentum in housing, however, with the slump in the oil industry and continuing problems in the Farm Belt cutting into sales in the South and Midwest.
While mortgage rates climbed above 10% again in May and early June, they have started falling in recent weeks. Fixed-rate mortgages stood at a national average of 10.4% last week, according to a survey by the Federal Home Loan Mortgage Corp.
David Wyss, an economist with Data Resources, predicted that rates will drop below 10% again by fall and help boost home sales.
The surge in sales of both new and existing homes so far this year has helped lift the percentage of American households owning their own homes to 63.8% in the April-June quarter, according to a separate Commerce Department survey.
Homeownership, which had hit a 20-year low in the final three months of last year, still remains well below the all-time peak of 65.6% in 1980.
James Christian, chief economist for the U.S. League of Savings Institutions, said that with sales of new and existing homes running at an annual rate of more than 4 million units since last August, there should be further improvements in ownership rates in the months ahead.
But Michael Sumichrast, an economist at the National Assn. of Home Builders, said his latest survey of builder expectations for future sales showed a substantial decline in July.
“I think housing production peaked in the second quarter and you will see moderation in construction and sales for the rest of the year,” he said, predicting that sales of new single-family homes would total 710,000 for all of 1986, up 3% from last year.
Rose Only in the West
The weakness hit all regions except the West, where sales rose by 9.4% to an annual rate of 210,000 units.
The sharpest decline came in the Midwest, a 37.9% drop that put sales at an annual rate of 64,000 units. Sales in the Northeast fell 35.6% to an annual rate of 96,000 units, while sales in the South dropped 1.5% to 332,000 units.
The weaker sales pushed prices down in June. The median price of a new home fell 3.3% to $89,600. The median price, which means that half the homes sold for more and half for less, had been $92,700 in May. The average sales price declined as well, dropping by 4.2% to $111,100.
The Bureau of Labor Statistics report said that preliminary data indicated that the gain in productivity--the efficiency with which goods and services are produced--was accomplished with an increase in per-unit labor costs of only one-half of 1%.
Productivity, traditionally a measure of competitive ability, had jumped at an annual rate of 3.4% in the first quarter following a downturn at the end of last year.
Hourly compensation--including wages and fringe benefits--rose at an annual rate of 2.2% in the second quarter, compared to a revised annual rate increase of 3.1% in the first quarter.
But, taking into account the 1.7% drop in consumer prices during the period, the largest quarterly decline since 1949, the real increase in wages and benefits in terms of buying power amounted to 3.9%, the bureau said.
Exercising Caution
The 1.7% increase in non-farm business output with a slight decrease in hours worked--less than one-tenth of 1%--was viewed by economists as an indication that businessmen are exercising caution going into the second half of the year.
“You always worry about overhiring and inventory buildups right before a recession,” said Michael Evans, who runs an economic forecasting firm in Washington. “But because we’re not building up any excesses, the chances of a recession are less.”
While the decrease in the size of wage and benefit packages and hours worked is evidence of a “continuing squeeze on labor, it does portend continuing low inflation rates,” said Allen Sinai of Shearson Lehman Bros. in New York.
The overall figures, however, masked a continuing malaise in manufacturing. Production of durable and non-durable goods fell 1.5% in April, May and June, compared to the first quarter of 1986, and the number of hours worked dropped 3.4%.
The decline in manufacturing output was the first drop since the end of the last recession in the fourth quarter of 1982.
Most of the efficiency gains in manufacturing were in non-durable goods such as textiles. Productivity there in the second quarter rose 4.5% on a 2.8% increase in output accompanied by 1.6% decreases in both hours worked and unit labor costs.
By contrast, manufacturers of durable goods showed a productivity increase of less than one-half of 1%.
