Surprisingly strong gains in sales of new homes and orders for costly manufactured goods in December signaled more vigor in some soft sectors but dashed hopes for early interest-rate cuts.
The two Commerce Department reports Friday cemented expectations that the Federal Reserve’s policymaking Federal Open Market Committee would keep rates on hold when it meets Tuesday and Wednesday.
New-home sales rose 4.8% in December to an annual pace of 1.12 million units. The median sale price rose to $235,000 from $232,200 in November, as builders cut the number of homes on the market to avoid inventory buildups.
Orders for U.S.-made durable goods -- items intended to last three years or longer -- rose 3.1% in December. Although much of the gain came from strong demand for Boeing Co. jetliners, other components such as machinery and primary metals also posted hikes.
Analysts said recent indicators implied surprising resilience in the economy.
“The problem for the Fed is that the FOMC meets next week and they have these strong housing data and even better general economic numbers to contend with,” said economist Joel Naroff of Naroff Economic Advisors. “The slowdown they had been pointing to is no longer there.”
For the full year, new-home sales dropped 17.3% from 2005, the steepest fall in 16 years and the first year-over-year decline after a five-year rally.
But investors focused on the strong December numbers and whether they stemmed from unseasonably warm weather or signified that the slumping housing sector was on the rebound along with manufacturing.
Short-term interest-rate futures trading Friday implied a prevailing belief that the Fed would keep rates steady for much if not all of 2007. Earlier this month, futures priced in at least 50 basis points in cuts for the year.
The durable goods report showed that transportation orders in December climbed 4.8% amid a 26.5% rise in civilian aircraft orders and a 20.5% surge in defense aircraft and parts.
Even excluding volatile transportation orders, which are skewed by aircraft, durable goods orders rose 2.3% in December after two monthly declines, a much stronger performance than Wall Street analysts expected.
In 2006, new durable goods orders rose 7% over 2005 for a third straight annual gain. Shipments increased 5.6%, also the third straight gain.