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Business Productivity Dips, Home Sales Spurt

From Reuters

The pace of new orders for manufactured goods weakened in April and worker productivity slackened, but Americans bought homes at a surprising clip despite rising mortgage interest rates, the government said Tuesday.

The Commerce Department said single-family home sales were up 7.6% in April to a seasonally adjusted annual rate of 777,000. But industry analysts did not expect the pace to continue, attributing the sharp rise to last-minute buying in anticipation of still higher mortgage rates to come.

The department also said factory orders were up a scant 0.2% in April to a seasonally adjusted $199.8 billion, with new orders for expensive durable goods like cars and heavy appliances showing no growth at all. The slump followed a 2.6% orders rise in March.

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Excluding the volatile military goods category, factory orders fell 0.2% in April after a 1.1% March increase, possibly foreshadowing fewer job opportunities later this year.

At the same time, the Labor Department revised down its estimate of productivity, or output per worker, to 0.5% between January and March from an earlier reported 1.7%. The productivity measure, a statistical index, now stands at 105.4 based on a 1977 benchmark of 100.

The drop in labor productivity could increase inflationary pressures, said Douglas Handler, senior economist for Wharton Econometrics in Bala-Cynwyd, Pa., because it means unit labor costs for production--generally passed on in increased prices to consumers--will begin rising.

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The April increase in housing sales, coming after a March decline of 2.7%, appeared to result from a late rush by homeowners to buy before mortgage interest rates go still higher.

“This is a reaction to the bottom fishing that was going on,” said Martin Regalia, senior economist for the National Council of Savings Institutions. “A lot of people were waiting for mortgage rates to bottom out and now that they have and have kicked back, people were jumping in to buy.”

Regalia emphasized the April sales rise was a brief phenomenon.

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