Americans bought new homes at the fastest pace in four months in July, helping ease the damage to the economy from slumping orders for factory goods.
The Commerce Department reported a 4.9 percent rise in sales to 950,000 houses at an annual pace, the most since March. The increase was the second in a row and surprised analysts, who were expecting sales to drop.
A 0.6 percent decrease in new orders for durable goods, also reported by the Commerce Department, came as no surprise. Still, the 2.6 percent drop the previous month was larger than previously thought and the level of orders excluding the volatile transportation category was the lowest since January 1997.
"Demand for housing products remains very strong," said Pete Correll, chief executive officer of Georgia-Pacific Group, the second-biggest maker of forest products such as paper, packaging, lumber and plywood, in an interview. At the same time, "Some of our businesses are the worst I've seen in 30 years."
The jump in home sales sent Treasury securities tumbling. The 10-year note fell 11/32 point, pushing up its yield up 5 basis points to 4.92 percent.
Rates on 30-year fixed mortgages of less than 7 percent have boosted home sales. Appliance and hardware retailers such as Home Depot Inc and Lowe's Cos are reporting increased sales and profits. "We're selling a lot to Home Depot and even more to Lowe's," Georgia-Pacific's Correll said.
Meanwhile, manufacturing is suffering from three straight quarterly declines in business investment. Dell Computer Corp and Cisco Systems Inc see flat or falling orders. That's cut into demand for paperboard packaging, another Georgia-Pacific product.
Federal Reserve policy makers focused their attention on business spending this week when they cut the target rate for overnight loans between banks to 3.5 percent. It was the seventh reduction this year and brought the benchmark rate to its lowest since April 1994.
"Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the US economy," the Fed's Open Market Committee said.
The July sales pace compares with a record 886,000 new homes sold in 1998.
Analysts had expected new home sales to fall 0.3 percent to 919,000 houses at an annual rate from June's previously reported pace of 922,000. New homes account for about 15 percent of all houses sold.
Sales increased in all regions, led by an 18 percent surge in the Northeast to 72,000 homes at an annual rate. Sales rose 6.9 percent in the Midwest to 187,000. They rose 4.6 percent in the West to 250,000 and 2.3 percent in the South to 441,000.
The inventory of homes for sale fell to 3.8 months' worth in July from 4 months' supply in June. The median price of a new home fell to US$168,300 from US$172,400 the previous month.
One sign that homes are selling quickly: Houses spent 4.5 months on the market, the shortest amount of time since December, compared with 5 months in June. Correspondingly, the last time sales rose more than 4.9 percent was in December, when they jumped 13.5 percent.
A decline in borrowing costs has underpinned demand. The average rate on a 30-year mortgage dropped to 6.91 percent this week, the lowest in almost five months, according to Freddie Mac, the No. 2 buyer of US mortgages. The rate reached a five-year high of 8.64 percent in mid-May of last year.
Home Depot, the largest home-improvement chain, sold more appliances and energy-efficient products such as fluorescent light bulbs, contributing to a 16 percent rise in sales in the quarter that ended July 29. Profit rose 10 percent. Lowe's, the second largest, reported an 18 percent rise in net income.
Still, analysts expect sales in the second half of 2001 to cool from the first six months of the year. KB Home, the second- largest homebuilder, has already reported that its July orders for US homes fell 2 percent to 1,427. MDC Holdings Inc, a Denver-based homebuilder, said its July orders fell 22 percent from a year earlier to 602.
Revisions to previous months' figures also show sales weren't as strong in some months earlier this year.
The jobless rate was 4.5 percent in July, up from a 30-year low of 3.9 percent in September and October. Economic growth cooled to a 0.7 percent annual rate in the second quarter, the slowest in more than eight years. It marked the fourth straight quarter that growth has been below 2 percent, which hasn't happened since the 1990-1991 recession.
The manufacturing slump is a reason. Decreased spending on computers and semiconductors held down orders in July. Based on surveys by the National Association of Purchasing Management, manufacturing has been in decline for a year.
Excluding motor vehicles and other transportation equipment, orders fell 1.4 percent in July after decreasing 2.1 percent in June. July orders other than for transportation equipment were valued at US$129 billion, the lowest since January 1997.
The July level of orders for all durable goods, at US$182 billion, is the lowest since July 1998.
Analysts had expected a 0.6 percent decrease for July to US$183.7 billion, according to a Bloomberg News survey.
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