But downward revisions to sales estimates for April and May contained in the report on Monday left in place a picture of a weak housing market and perceptions that economic growth moderated somewhat in the second quarter.
New home sales vaulted 23.6 percent to a 330,000 unit annual rate, the Commerce Department said. Still, the sales pace last month was the second lowest since records started in 1963.
“We can’t take too much joy in one month’s figure. The roadblocks to a healthy housing market are high, the most important one being the still-high jobless rate,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
The percentage increase last month was the largest since May 1980, and it partially unwound May’s historic 36.7 percent drop. Analysts polled by Reuters had forecast new home sales rising to a 320,000 unit pace last month from May’s previously reported 300,000 units.
The report, together with package delivery and business services company FedEx Corp’s upgrading of its quarterly and full-year earnings forecasts, lifted stocks on Wall Street.
FedEx, regarded as an economic bellwether, said more packages were flowing through both its air and ground networks.
Prices for safe-haven U.S. government debt slipped, while the dollar pulled back from session lows against the yen.
Recent data have implied the U.S. economy’s recovery from its longest and deepest recession since the 1930s slowed in recent months, but economists do not expect a renewed downturn.
Ford Motor Co Chief Executive Alan Mulally told NBC’s “Today” show that he agreed. “I think that we’re going to have good, steady growth here,” he said.
ACTIVITY SLOWING DOWN
The government is expected to report on Friday that growth slowed to a 2.5 percent annual rate in the April-June period from a 2.7 percent pace in the first three months of the year.
Moderation in growth was signaled by a measure of national economic activity released on Monday. The Chicago Federal Reserve Bank said it’s national activity index fell in June for the first time since February, dropping to minus 0.63 from a positive 0.31 in May. A reading above zero indicates the economy is growing above trend.
Separately, a gauge of factory activity in the Texas region extended its decline this month, suggesting a pull-back in manufacturing continued in July. Manufacturing has been the main engine of growth.
While economists expect weak housing activity to act as a drag on growth for much of the year, they do not believe this would be enough on its own to trigger a double-dip recession.
“It’s not going to affect the economy that much. It’s more the economy affecting the housing market. What we need is for the economy to start creating jobs,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts.
Data last week showed home construction fell to an eight-month low in June, while sales of existing home sales were the lowest in three months.
Housing’s share of the economy has shrunk in recent years and residential construction accounted for about 2.4 percent of U.S. gross domestic product in the first quarter.
The impact of a 10 percent drop in home construction has about one-third the impact now as it did in 2006, according to economists at Bank of America-Merrill Lynch.
The Commerce report suggested the housing market may be close to working through the distortions following the end of a popular home-buyer tax credit in April, an incentive that brought forward sales.
Last month’s surge in sales saw the supply of new homes available for sale dropping to 7.6 months’ worth from 9.6 months’ worth in May. The number of new homes on the market dropped 1.4 percent to 210,000 units, the lowest level since September 1968.
“Progress is being made in reducing the excess inventory, which is crucial for the outlook for prices,” said Paul Dales, a U.S. economist at Capital Economics in Toronto.
“However, new home sales make up just five percent of all sales. And the post-tax credit fall-off in activity has yet to fully show up in existing sales. Total home sales have, therefore, yet to hit rock bottom.”
The median sale price for a new home fell 1.4 percent last month to $213,400. In the 12 months to June, prices dipped 0.6 percent.
Financial Mirror, July 27, 2010