Economy Shows Signs of Possible Slowdown
A key barometer of future economic trends pointed on Wednesday to a slowdown in the vibrant U.S. expansion, and new-home sales fell to a 2 1/2-year low.
The index of leading economic indicators was unchanged in June, after falling 0.1% in May and holding steady in April, the Conference Board, a business research group, said.
A separate Commerce Department report said the number of new homes sold in June fell 3.7%, a sign the real estate market was slowing in response to a series of interest rate hikes by the Federal Reserve. It was the third consecutive monthly drop in home sales and was the lowest level recorded since December 1997.
U.S. stocks rallied on the news, which eased investor fears that the Fed would hike rates at its next meeting. But evidence of a slowdown has been contradicted in recent days, leaving the rate outlook clouded.
A slower pace of home buying could temper other areas of the economy as there may be less demand for appliances and other big-ticket items typically purchased by new homeowners.
After six Federal Reserve interest rate hikes in the last year, most economists were expecting the U.S. economy to lose some of its remarkable vigor.
But the slowdown is occurring in fits and starts. Though new-home sales fell, existing-home purchases rose in June, hitting their highest level since August 1999.
“This [housing report] is telling us that consumers have taken a break from buying goods and slowed their purchases of new homes. But that being said, I don’t think this buying spree is over yet. I don’t think it’s over by a long shot,” said economist Chris Rupkey at Bank of Tokyo/Mitsubishi in New York.
Many economists were also confounded last week when the government reported that growth in the second quarter of this year picked up to an annual rate of 5.2%, compared with 4.8% in the first quarter.
“This is not the kind of performance to be expected,” said Ken Goldstein, an economist at the Conference Board. “Some unusual influences are having an impact on the leading indicators.” He cited the Treasury yield curve, which is influenced both by Fed moves and bond-market activity, as one example.
Four of the 10 components that make up the leading indicators index were positive in June, led by manufacturers’ new orders for nondefense capital goods and stock prices.
Four components of the index signaled negative in June, led by the Treasury yield curve and initial jobless claims. But vendor performance and the money supply were unchanged.
At the same time, the Conference Board’s “coincident index,” a barometer of current economic trends, rose 0.2% in both June and May.
The lagging index, which measures past trends in the economy, increased 0.8% in June after a 0.2% rise the prior month.
“If sharp increases in the lagging index continue, cyclical imbalances could jeopardize the economy’s stability,” the group warned.
According to the Commerce Department, the number of single-family homes sold in June fell to a seasonally adjusted annual rate of 829,000 units, compared with 861,000 units in May. June sales were 12.6% lower than the 948,000 units sold in the same period a year ago.
The sales slowdown in June was concentrated in the Midwest, where sales dropped 7.0% to 133,000 units. Sales in the South fell 5.1% to 408,000 units, while sales in the Northeast fell a more modest 1.5% to 67,000 units.
Only the western United States saw an increase in sales, up a slight 0.5% in June to 220,000 units.
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New-Home Sales
Seasonally adjusted annual rate, in thousands of units:
June: 829,000
Source: Commerce Department
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Index of Leading Economic Indicators
Seasonally adjusted index; 1996=100
*
June: 106.0
*
Source: Conference Board
