Reports on Big-Ticket Goods, Homes Depict Strong Economy

Sales of new homes shot up at the fastest pace in 13 years last month, reflecting a rebound from bad weather in February, while a jump in demand for commercial aircraft pushed orders for big-ticket manufactured goods higher.

Both reports depicted an economy continuing to expand at a healthy pace, a view supported by a new Federal Reserve survey of business conditions around the country released Wednesday.

The Fed’s 12 regional banks used words such as “solid” and “steady” to describe the economy’s performance in March and early April. The Fed did note that “higher energy prices were at the forefront of most districts’ mention of cost pressures,” and that was before crude oil soared to a record $75.17 a barrel Friday.

Some analysts said the strong growth combined with inflationary pressures would spur the central bank’s Federal Open Market Committee to not only raise rates for a 16th consecutive time at its May meeting but also keep going after that. More on the Fed’s thinking may be known after Fed Chairman Ben S. Bernanke testifies on the economic outlook today before Congress’ Joint Economic Committee.

The Commerce Department reported that sales of new single-family homes rose 13.8% last month to a seasonally adjusted annual rate of 1.21 million. The increase represented a recovery from the 10.9% drop in February.

But the median price of homes sold in March dropped to $224,200, down 2.2% from March 2005 levels. It marked the first time home prices dropped over a 12-month period since December 2003.

Home prices soared last year as anxious buyers bid more to get into a sizzling market. However, analysts believe that sales volume, which set records for five straight years, will decline about 10% in 2006 because of rising mortgage rates.

“With interest rates continuing to rise, all signs point to a further weakening in sales just down the road,” said Patrick Newport, an economist with Global Insight.

Rates on 30-year mortgages rose last week to 6.53%, the highest level in nearly four years, with economists forecasting a continued advance to about 7% by the end of this year.

Home sales were up in all areas of the country in March, led by a 35.7% surge in the West, followed by gains of 10.9% in the Midwest, 6.9% in the South and 4.7% in the Northeast.

In contrast to the surge in new-home sales in March, sales of previously owned homes edged up 0.3%, according to a report Tuesday from the National Assn. of Realtors.

Both reports, however, showed that the number of unsold homes on the market at the end of the month rose to record levels, a development that was expected to depress price gains in coming months.

The number of new homes on the market rose to 555,000 in March, up 2.8% from February.

The government also reported that orders to U.S. factories for big-ticket manufactured goods soared 6.1% in March, the biggest gain in 10 months. Two-thirds of the increase reflected a 71.1% jump in demand for commercial aircraft.

The overall increase, which followed a 3.4% February advance, was more than three times the gain Wall Street had expected. Manufacturing is expected to remain strong as businesses restock lean inventories and boost spending to expand and modernize.