The housing market began to retrench in May after a government incentive ended, leaving manufacturing at the head of the U.S. recovery, economists said reports this week will show.
Sales of new homes fell 19 percent to a 410,000 annual pace last month, according to the median estimate of 57 economists surveyed by Bloomberg News before a Commerce Department report June 23. Orders for durable goods may show gains in business investment and overseas sales boosted demand for capital equipment like computers and machinery.
“We got the run-up in housing activity and there’ll be a pretty big payback now that the tax credit has expired,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “The strongest sector of the economy right now is manufacturing.”
Federal Reserve policy makers meeting this week are projected to commit to keeping interest rates near zero in coming months to help wean the world’s largest economy off government stimulus. The hazard posed by the European debt crisis, joblessness and a lack of inflation add to the reasons why central bankers will focus on sustaining the economic rebound.
“There are certainly a lot of risks the Fed is mindful of, and they’re very much in a wait-and-see mode,” said Stanley. Central bankers begin their two-day policy meeting on June 22.
Homebuyers needed to have signed their contracts by April 30 and must close deals by the end of June to qualify for a government credit worth as much as $8,000. Sales of new houses are tabulated at contract signings, meaning the window of opportunity for that market has shut.
Fewer Orders
Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, reported this month that orders fell 17 percent in the quarter ended April 30 from the same time last year, and contract signings slowed in May, a sign the tax credit helped pull some sales forward.
“The expiration of the federal homebuyer tax credit, the lack of job growth and a potential increase in foreclosures all pose risks to a housing industry recovery,” Ara K. Hovnanian, chairman and chief executive officer, said in the statement on June 2.
Resales, in contrast, have a couple more months to run. Purchases of existing homes, which are calculated based on closings, rose 6.5 percent in May to a six-month high 6.15 million annual pace, according to the median estimate of 57 economists surveyed by Bloomberg. The report from the National Association of Realtors is due June 22.
Aircraft Orders
Bookings for goods meant to last at least three years fell in May for the first time in six months, according to the survey median. The projected 1.3 percent drop reflects a likely retreat in demand for transportation equipment, a volatile category. Orders for civilian aircraft probably fell after jumping 228 percent in April.
Orders excluding transportation increased 1 percent, the third gain in the past four months, the Commerce Department’s June 24 report on durable goods is also projected to show.
Growing exports and business spending are helping drive the rebound in demand at American factories. Sales overseas were up 22 percent through April from the same time last year, according to figures from the Commerce Department. Investment in equipment and software climbed 13 percent in the first quarter after increasing 19 percent in the prior three months, the best six- month performance since 2000.
Growing Economy
The economy began to recover in the middle of last year following the worst recession since the 1930s. Economists surveyed by Bloomberg forecast gross domestic product rose at an annual rate of 3 percent in the first quarter, matching the government’s prior estimate published last month. The Commerce Department will issue the report on June 25.
Stocks have fallen on concern the global economic rebound may cool as European governments try to reduce budget deficits. The Standard & Poor’s 500 Index is down 8.2 percent from a 19- month high reached on April 23.
The slump in stock prices is having limited effect on Americans’ confidence, a report will show on June 25. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 75.5 this month, the highest level since January 2008, from 73.6 in May, according to the survey median. The reading would match the preliminary estimate issued earlier this month.
Bloomberg Survey
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Release Period Prior Median
Indicator Date Value Forecast
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Exist Homes Mlns 6/22 May 5.77 6.15
Exist Homes MOM% 6/22 May 7.6% 6.5%
New Home Sales ,000’s 6/23 May 504 410
New Home Sales MOM% 6/23 May 14.8% -18.7%
Durables Orders MOM% 6/24 May 2.8% -1.3%
Durables Ex-Trans MOM% 6/24 May -1.1% 1.0%
Initial Claims ,000’s 6/24 19-Jun 472 460
Cont. Claims ,000’s 6/24 12-Jun 4571 4560
GDP Annual QOQ% 6/25 1Q T 3.0% 3.0%
Personal Consump. QOQ% 6/25 1QT 3.5% 3.5%
U of Mich Conf. Index 6/25 June F 75.5 75.5
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source: bloomberg.com
