Reports Send Mixed Signals on Health of U.S. Economy

Home sales surged last month but corporate capital spending remained weak, according to reports Wednesday that underscored the strength in certain parts of the economy and the ongoing softness in others.

Spurred by low mortgage rates--and perhaps by concern that they won’t last--sales of existing homes jumped 4.8% in March to their second-highest monthly sales rate ever, according to the National Assn. of Realtors.

A separate report from the Commerce Department said new-home sales rose 4.2% last month to a record annualized rate.

Housing has been surprisingly resilient throughout the economic slowdown of the last year. Despite predictions that sales would drop amid layoff announcements and declining consumer confidence, the vibrancy of the housing market has helped to keep the broader U.S. economy out of recession, analysts say.

But a Commerce Department report Wednesday showed that the manufacturing sector still is ailing because of a drastic reduction in capital spending by U.S. businesses.

“We’re getting a lot of mixed [economic] messages and today was a perfect example,” said Joshua Feinman, economist at Deutsche Asset Management in New York.

Overall, though, Wall Street seemed to view the reports as encouraging for the economy’s outlook: Stocks staged a broad rally, while Treasury bond yields rose.

Orders for durable goods--those expected to last at least three years--shot up a surprisingly strong 3% in March from February’s levels. But the gains were driven largely by spending on defense goods and commercial aircraft--categories that can fluctuate significantly from one month to the next.

Outlays on non-defense capital goods, excluding aircraft--which are a more accurate barometer of corporate capital spending--declined 0.7%, the government said.

“We’re still not seeing a lot of evidence of a revival in business capital spending,” said Paul Kasriel, chief economist at Northern Trust Co. in Chicago.

As the economy has weakened, many companies have severely reduced their spending on technology and factory equipment. That has battered the profits and stock prices of scores of tech companies.

Still, there were a few bright spots in the durable-goods report that, taken with the housing numbers, portray an economy that is not in recession, some economists said.

For example, auto shipments ticked up, and the 0.7% drop in non-defense, non-aircraft spending was an improvement from the 4.9% setback in February.

As for housing, existing-home sales jumped to a seasonally adjusted annual rate of 5.44 million units in March, according to the Realtors group.

New-home sales rose to a seasonally adjusted annual rate of 1.02 million units, the Commerce Department said.

Nevertheless, many analysts doubt that housing sales will maintain their sizzling pace as the year progresses.

The weakening job market will eventually take a toll on home sales, many economists say. And consumer confidence slid again early this month.

Also, mortgage rates have been inching higher in recent weeks, in part reflecting bond investors’ expectations that the economy overall will recover sooner than later, boosting demand for credit and inflation concerns.

The average rate for a 30-year fixed-rate mortgage rose to 7.14% last week. It had been as low as 6.89% in late March.

In fact, some experts said the frenzied housing activity in March was due in part to some buyers rushing to close deals for fear of a further rise in mortgage rates.

“We’re getting very good news on home sales, but it may not persist,” said John Lonski, chief economist at Moody’s Investors Service in New York.

Separate figures released Wednesday by the Mortgage Bankers Assn. of America showed that for the four weeks ended April 20, mortgage applications dropped 2.7% from a year ago, Lonski said. That contrasted with a 5% rise in the first quarter, he said.

The National Assn. of Home Builders on Wednesday predicted that, despite recent strength, housing starts for the full year will total 1.56 million, down slightly from 1.60 million last year.

*

More Inside

Rebound: Stocks rallied after three days of losses as investors snapped up shares, C4

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Durable Goods

New orders, in billions of dollars, seasonally adjusted:

Source: Commerce Department

Existing-Home Sales

Seasonally adjusted annual rate, in millions of units:

March: 5.44 million units

Source: National Assn. of Realtors