Numbers for housing, factories surprise

Fresh signs of a weak housing sector and a modest drop in new orders received by U.S. factories during May implied the economy was struggling to gain momentum in the second quarter.

The National Assn. of Realtors said its index of pending home sales -- a forward-looking gauge -- slumped by a sharp 3.5% in May to 97.7, its lowest level since September 2001.

The steep drop came as a surprise to financial markets. Economists polled by Reuters had forecast that the May index would instead rise 0.2%.

Separately, the Commerce Department reported that factory orders eased 0.5% in May, a smaller decline than the 1.2% slide economists had predicted.

Analysts said the reports presented both bad and good news, with no sign of an end to the slump in housing but some evidence that other economic sectors were taking up slack to keep the economic expansion moving.

Transportation equipment orders, which are the largest component of the factory orders, dropped 6.9% in May. Excluding transportation, factory orders were up 0.7%, aided by a 4.2% climb in computer and electronic equipment orders.

The factory orders data contrasted with other reports showing strength in U.S. manufacturing, including Monday’s Institute for Supply Management report that manufacturing growth accelerated in June while price pressures eased.

“Manufacturing appears to be providing a counterweight to the weakness in housing,” said Kevin Flanagan, a fixed-income strategist for global wealth management with Morgan Stanley in Purchase, N.Y.

Two other reports on major chain store sales pointed to a softening in consumer spending during late June.

A weekly measure compiled by the International Council of Shopping Centers and UBS Securities showed sales last week rose 2.5% from the comparable period a year earlier.

The Johnson Redbook retail sales index, meanwhile, showed sales up only 1.2% on a year-over-year basis.