January Home Sales Highest in a Decade

Sales of new homes unexpectedly soared in January to their highest level in a decade and the index of leading economic indicators rose, providing fresh evidence Tuesday that U.S. growth may be accelerating.

Federal Reserve Board Chairman Alan Greenspan, meanwhile, said the good times could continue, and he forecast “continued sustainable economic growth accompanied by low and stable inflation.”

Still, his comments carried a veiled warning of an interest rate increase if the economy shows signs of growing too fast. The Fed’s role is to “foster the conditions most likely to produce” a healthy economy with low inflation, he said.

New-home sales rose 8.6% in January to a seasonally adjusted annual rate of 870,000, confounding economists’ predictions of a downturn in housing.

The Commerce Department said January’s numbers could appear to overstate actual sales because new methods of data collection are boosting the monthly figures.

Department economists are attempting to dampen this effect by treating unusually large increases with caution and smoothing out the numbers, including those in the January report, said Everett Ehrlich, undersecretary of commerce for economic affairs.

Most of January’s nationwide increase in new-home sales came from a 63.4% jump in the Northeast. Sales fell 5.9% in the West and 10.3% in the Midwest, though they rose 11.9% in the South.

January’s figures follow a revised 0.5% increase in December sales, previously reported as a 1.0% decline.

Economists and bond traders said the Commerce Department should have announced its methodology change in advance, but they said that in the end, the report had only a passing impact.

Bond prices, which were rising, sank briefly after the report. They quickly recovered but sank again in the afternoon, with yields rising to 6.86% from Monday’s 6.83%.

Separately, the Conference Board’s index of leading economic indicators--intended to project economic activity over the next six months--rose 0.3% in January. That makes the 12th straight month without a decline, the longest string since 1984.

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New-Home Sales

Seasonally adjusted annual rate, in thousands of units:

January 1997: 870

Source: Commerce Department

Leading Indicators

Seasonally adjusted index; 1987=100:

January 1997: 103

Source: Conference Board