June 25 (Bloomberg) -- Sales of new homes extended their decline and orders for durable goods stagnated in May, underscoring forecasts that the Federal Reserve's first interest- rate increase since 2006 is still months away.
New-home sales fell to a 512,000 annual pace, the second- lowest level since 1991, the Commerce Department said today in Washington. Bookings for goods meant to last several years totaled $213.6 billion, the same as in April, Commerce reported. Both figures matched the median forecast of economists.
The reports indicate the manufacturing and housing industries aren't strong enough to withstand higher borrowing costs. Fed officials are forecast to halt their series of rate cuts today and may stop short of signaling they're ready to tighten.
``I don't think the Fed is going to seriously start raising interest rates until the economy is out of the doldrums and that won't be until sometime next year,'' Patrick Newport, an economist at Global Insight Inc. in Lexington, Massachusetts, said in an interview with Bloomberg Television.
Treasuries stayed lower after the figures, with benchmark 10-year note yields at 4.13 percent at 8:34 a.m. in New York, from 4.10 percent late yesterday. The Standard & Poor's 500 Stock Index gained 0.6 percent to 1,322.90.
Fed officials will keep their benchmark rate at 2 percent today, according to all 102 economists in a Bloomberg News survey. While most analysts in a separate survey this month said the central bank will hold off on a rate boost until next year, interest-rate futures show some traders are betting on a move as soon as August.
`Have the Courage'
``The Fed, in my opinion, has to have the courage to sit tight and not do anything despite what will be ugly inflation data in the next few months,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. ``If they raise rates they are really going to punish housing and financial assets.''
The median new-home sales price last month decreased 5.7 percent from May 2007 to $231,000. These figures can be influenced by changes in the mix of sales at the regional level. For that reason, economists prefer price measures that track the same home over time.
One such gauge, the S&P/Case-Shiller index, showed yesterday that prices in 20 U.S. metropolitan areas fell 15.3 percent in April from a year earlier, the steepest decline since the group began keeping records in 2001.
Compared with a year earlier, sales of new homes were down 40 percent, today's Commerce report showed.
Unsold Properties
The supply of homes at the current sales rate rose to 10.9 months' worth from 10.7 months in April. The number of homes completed and waiting to be sold decreased to 182,000.
New-home purchases dropped in two of four regions. They decreased 12 percent in the West and 7.9 percent in the Northeast. The 114,000 sales at an annual pace in the West were the lowest since September 1982. Sales rose 5.1 percent in the Midwest and 0.4 percent in the South.
``It feels to us as though we're pretty much on the bottom, but that doesn't make you feel too good,'' Robert Toll, chief executive officer of Toll Brothers Inc., the largest U.S. luxury- home builder, said in a Bloomberg Television interview yesterday. ``We have noticed some good times coming back in some markets, but in other markets, there's no sign of recovery.''
Credit-Card Debt
American Express Co., the biggest U.S. credit-card company by purchases and cash advances, today said customers are falling behind on their debt at a faster-than-anticipated pace, signaling the economy is worsening.
``Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations,'' Chief Executive Officer Kenneth Chenault said in a statement.
Durable-goods orders for April were revised to show a 1 percent drop that was larger than previously estimated. Excluding demand for transportation equipment, which tends to be volatile, orders declined 0.9 percent, the first drop in three months.
The durables report signaled the domestic slowdown, spurred by the housing recession and weaker consumer spending, offset the benefit of record exports. That pattern probably continued in June, as reports from the New York and Philadelphia Federal Reserve banks last week showed manufacturing in their regions shrank at a faster pace this month.
``Obviously you're seeing very weak consumer numbers and housing numbers,'' James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said in an interview with Bloomberg Television. ``Chances are the trend is still weakening.''
Autos Drop
Metals, machinery and automobiles were among the goods that saw a drop in demand last month. Those declines were offset by gains in computers, appliances, commercial aircraft and defense equipment.
Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, fell 0.8 percent and April's 4 percent gain was revised down to 3.1 percent. Shipments of those items, a number used in calculating gross domestic product, increased 0.6 percent following a 0.9 percent gain in April that was larger than previously estimated.
The figures may lead some economists to boost forecasts for growth this quarter and lower estimates for the second half of the year.
Carmakers are paring output or shifting production to more fuel-efficient vehicles. General Motors Corp., struggling to return to profit amid record gasoline prices, said June 3 it will close four truck plants, make more small cars, and may drop its Hummer brand of large sport-utility vehicles.
``You've seen a virtual collapse in the mid-utility market,'' Fritz Henderson, chief operating officer of GM, said in Wilmington, Delaware, on June 3. ``Now it's pickup trucks that are being affected by fuel prices, and also by construction and housing'' slumps.
Among the biggest costs for manufacturers, oil rose to more than $137 a barrel this week.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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