Contracts to buy previously owned homes fell in March, and businesses, faced with a slump in demand, slashed worker hours in the first quarter to increase productivity and safeguard profits, data Wednesday showed.
The National Assn. of Realtors index, based on contracts signed in March, fell 1% to 83.0, the lowest since the index began in 2001, and was 20.1% lower than a year ago.
Economists were expecting a decline in the contracts, which are a good barometer of future home sales, as buyers have been increasingly skittish about a market in which prices are declining and as mortgage financing is more difficult to obtain.
"This is not a shock. The pace of sales seems to be stabilizing, but that's the best you could say about it. But I don't think we've hit a bottom yet," said David Wyss, chief economist at Standard & Poor's in New York.
With continued erosion in the housing and mortgage markets, businesses did their part to brace for tough economic times.
U.S. non-farm productivity in the first quarter grew at a faster-than-expected pace as workers saw the biggest cut in hours since 2003, when the economy was in a jobless recovery from its last recession.
"Continued solid productivity gains should help businesses survive the current slowdown," said Joel Naroff, president and chief economist at Naroff Economic Advisors in Holland, Pa.
In a sign that tight consumer credit markets could be starting to loosen, U.S. consumer borrowing rose $15.29 billion in March, far more than expected and the biggest gain since November, a Federal Reserve report showed.
Overall March consumer credit rose at a 7.21% annual rate, to a total of $2.558 trillion as credit card borrowing and installment loans grew at a brisk pace. Analysts polled were expecting a $6-billion rise.
At the start of this year, U.S. non-farm productivity rose at a 2.2% annual clip, much faster than the 1.5% pace economists were expecting.
But the Labor Department said worker hours fell at a 1.8% rate in the first quarter, the biggest decline since the start of 2003.
The aggressive efforts to cut back on hours worked should help businesses shield their profits and keep wage-related price pressures under control.
Generally, weaker productivity amid tight labor markets can spell wage-driven inflation. But faster productivity growth may help the economy expand without sparking that wage push.
Unit labor costs, a gauge of inflation and profit pressures under close scrutiny by the Fed, rose at a 2.2% annual pace, slower than the 2.5% increases analysts were expecting.
Compensation per hour rose at a 4.4% annual rate, but adjusted for inflation, it rose a scant 0.1%.
When compared with the first quarter of 2007, productivity was up 3.2% and unit labor costs rose a mere 0.2%. Compensation rose 3.4%, but when adjusted for inflation it dropped 0.7% from 2007's first quarter.