Sales of New Homes Climb 7.1% in May
The Commerce Department on Monday reported surprisingly brisk sales of new homes in May, an indication of the economy’s durability as growing consumer incomes fostered a pickup in spending.
The data, together with separate regional reports of rising industrial activity, sent a chill through financial markets a day before Federal Reserve Board policymakers were to begin a two-day meeting on interest rates.
Bond prices dropped sharply, sending long-term interest rates higher, with the yield on the 30-year Treasury settling at 6.78% from Friday’s 6.73%. Stock prices were down, with the Dow Jones industrial average ending down nearly 15 points to close at 7,672.79.
Nonetheless, the Federal Open Market Committee is widely expected to announce Wednesday that it is holding rates steady in the absence of clear signs of rising inflation and amid signs that economic growth is cooling from its overheated first-quarter pace.
Sales of new homes rebounded 7.1% in May to a seasonally adjusted annual rate of 825,000 units--well above forecasts and the strongest monthly pickup in six months--after a revised 8.1% drop in April.
The supply of homes for sale on the market dropped to its lowest level in nearly 26 years--just 4.1 months’ worth at the rate that May sales were taking place.
Another Commerce Department report shows consumer spending increased 0.3% in May to a seasonally adjusted annual rate of $5.37 trillion, after a slight 0.1% rise in April.
Incomes from wages, salaries and all other sources were up an identical 0.3% in May to $6.77 trillion a year, following a 0.2% pickup in April.
Rising incomes, powered by steady job growth, underline the vigor in the consumer sector that has sent confidence soaring, but they added to concern among several analysts that a second-quarter slowdown could prove temporary.
If so, that could bring higher interest rates later in the year if the Fed deems them necessary to head off inflation.
Economist David Seiders of the National Assn. of Home Builders said the slim supply of new homes for sale showed “very taut” conditions in the face of strong demand.
“The real question now is: Are we poised for a rebound in production in the second half with these inventory levels?” Seiders said.
“We’re betting against it” and counting on the Fed to hold interest rates steady this week, he added.
Meanwhile, other reports show manufacturing surged in June in the Midwest and the New York area. An index compiled by the Purchasing Management Assn. of Chicago jumped to 61.5 in June from 56.8 in May, while the New York purchasing managers index rose to 64.9 from 50.8 a month earlier.
The American Business Conference reported that fewer executives of fast-growing, mid-size companies expect to raise prices during the third quarter, compared with those surveyed for the second quarter.
