Home Sales and Income Decline, Report Shows : Economy: Other barometers also indicate that the recovery is still sluggish.
The Commerce Department, reporting further evidence that the economy continues to sputter, said Thursday that personal income declined in July for the first time in six months while sales of new single-family homes dropped sharply last month.
In another report, the Conference Board said its Help-Wanted Advertising index dropped four points in July to 92 after a three-point increase in June. And a Federal Reserve study found banks willing to provide consumer credit but stricter in making commercial real estate, business and some home mortgage loans.
But economists, noting that the number of Americans filing new claims for unemployment benefits fell slightly in mid-August amid positive signs in manufacturing, said the figures don’t alter the consensus view that the economy has begun to turn around. However, they said, the bleak data bolsters evidence that the economy may be recovering more slowly than previously thought.
“If you look at all the indicators, including last week’s increase in durable goods orders and the slight (downward) revision in GNP, the evidence is consistent with the view that the economy is growing--but very slowly,” said David W. Berson, vice president and chief economist at the Federal National Mortgage Assn. in Washington.
“The kind of optimism we felt a few weeks ago has been lowered quite a bit,” added Larry Kimbell, director of research at the WEFA Group economic forecasting unit in Bala-Cynwyd, Pa. “I’m a little concerned about the outlook.”
For the first time in six months, the Commerce Department reported that Americans’ personal incomes decreased--by 0.1% in July to a seasonally adjusted annual rate of $4.81 trillion.
The $5.6-billion drop was accompanied by a modest 0.4% increase in consumer spending--to a seasonally adjusted annual rate of $3.84 trillion. That followed stronger gains of 0.7% in June and 0.8% in May.
With income so anemic, consumers maintained living standards by dipping into savings. The personal savings rate was 3.7% last month, down from 4.1% in June.
Also, a key component of income--wages and salaries--fell 0.3% in July, even more than income generally.
Likewise, new-home sales declined 8.5% to a seasonally adjusted annual rate of 472,000 from 516,000 in June. An earlier estimate showing a 7.4% gain in June was revised sharply downward to 4%.
The latest figures, on top of a 6.7% decline in existing-home sales reported earlier this week by the National Assn. of Realtors, left experts doubting whether lower interest rates could stimulate more demand for homes.
“There was a lot of optimism that declining mortgage rates would stimulate sales, but they haven’t provided sufficient incentive,” said Marc A. Weiss, an associate professor at Columbia University and director of the university’s Real Estate Development Research Center. “The impact of this recession is continuing to take its toll on home sales.”
The employment picture was more mixed, reflecting the trendless pattern of “a recovery struggling under the weight of continued ‘downsizing’ and the lack of any stimulus from fiscal policy,” Conference Board economist Ken Goldstein told Reuters.
The government reported that, for the week ending Aug. 17, 421,000 Americans filed first-time claims for unemployment benefits. Although that was a drop of 9,000 from the previous week, it followed a 22,000 jump in claims the week before.
The uncertainty on the employment front has hurt consumer confidence, causing Americans to tighten their purse strings and put off home purchases.
Still, economists don’t believe that consumer spending, which represents two-thirds of the nation’s economic activity, nor home sales--which represent 3.5% of the gross national product--are likely to be the fuel that drives the nation back to recovery, as in previous recessions.
“Output is growing; jobs are not,” said WEFA’s Kimbell, who said he expects that the economy will be paced by the manufacturing sector rebounding because of demand for U.S. exports.
A key wild card in the economy’s future performance will be whether lenders loosen their purse strings. Earlier this month, the Federal Reserve cut short-term interest rates to stimulate the economy. Many observers believe that the bank is prepared to trim rates next month if the economy needs more stimulus.
Many experts have contended that the reluctance of banks to make loans to finance consumer purchases may have helped delay the recovery. But a survey of senior bank officers released Thursday by the Federal Reserve found little evidence that lenders were unwilling to provide consumer credit.
However, the survey, conducted Aug. 9 to 13, indicated that banks continued to tighten their lending standards for commercial real estate loans and were also slightly more selective in making home mortgage and business loans.
Personal Income
Trillions of dollars, seasonally adjusted annual rate
July, ‘91: 4.81
Source: U.S. Dept. of Commerce
Personal Spending
Trillions of dollars, seasonally adjusted annual rate
July ‘91: 3.84
Source: U.S. Dept. of Commerce
New--Home Sales
Seasonally adjusted annual rate, thousands of units
July, ‘91: 472
June, ‘91: 516
July, ‘90: 541
Source: Commerce Department
