Economy Still Showing Strength

The U.S. economy is set to grow well into the second half of the year, according to reports released Tuesday, while the government provided fresh evidence in a separate report that rising interest rates have done little to dissuade new-home buyers despite rising prices.

Analysts said the figures pointed to further interest rate increases by inflation fighters at the Federal Reserve.

Sales of new homes jumped 4.5% in March to their highest level in more than a year, despite a leap in interest rates for mortgages, the Commerce Department reported. Analysts had expected a decline of 2%.

The Index of Leading Economic Indicators, which is designed to predict economic activity three to six months ahead, rose 0.1% in March, indicating continued growth, but at a lower pace than in the last six months, the Conference Board said.

A separate forecast from the National Assn. of Purchasing Management said that the manufacturing industry will continue to prosper through the year, and that companies are looking for a 5.9% increase in revenues over last year. But the report Tuesday also said its semiannual survey of industry executives found worries about inflation, interest rates and a possible shortage of workers.

In another report Tuesday, the Commerce Department predicted that 75% of manufacturing industries and all the major sectors of the service industry will grow this year.

The annual forecast of winners and losers in American business said growth would be led by information technology companies.

The banner month for home sales came despite five interest rate increases by the central bank since June which have sent interest rates on 30-year mortgages close to 8.5%.

Of most concern for the Fed, economists said, was not the strength of demand for new homes, but that builders have been able to raise prices--a possible omen that broader inflation pressures could be building in the red-hot U.S. economy.

March’s sales pace was the second largest on record, after the 995,000 unit pace in November 1998.

The median price for new homes rose to $165,000 in March from $160,000 in February.

The leading index was pushed up in March by rising orders for consumer goods, rising stock prices and declining unemployment. It was held down by rising interest rates and slightly tempered consumer expectations on the economy.