Jason Rose

THE US economic recovery gathered steam in July, according to better-than-expected reports on manufacturing and the housing market.

Sold: Workers smooth cement for a driveway outside a new home under construction in North Carolina. Picture: Bloomberg

The two segments of the economy that were among the weakest during the depth of the recession — new home sales and durable goods orders — both registered big gains last month to bolster the view held by many economists that the US economic contraction is coming to an end.

“The continued recovery in durable goods orders and new homes sales in July adds to the evidence that activity in the manufacturing and housing sectors is expanding again,” said Paul Ashworth, senior US economist at Capital Economics.”However, with the consumer still supine, we don’t yet have the foundations for a sustainable recovery.”

New-home sales climbed more than anticipated in July, staging their fourth straight month of strong gains to add to evidence that the housing market is emerging from its long slump.
Demand for long-lasting goods also rebounded sharply, staging their biggest gain in two years on the back of big orders for aircraft and capital goods.

Sales of single-family homes increased by 9.6 per cent to a seasonally adjusted annual rate of 433,000 compared to the prior month, the US Commerce Department said.

That was the highest number sold since September 2008 and well above expectations for a 1.6 per cent gain to 390,000.

“These new numbers are another sign that we have put the brakes on the worst economic downturn in generations,” Rebecca Blank, undersecretary of Commerce for economic affairs, said.
She said increased distribution of stimulus money going into year end should continue to support growth.

The sales increase was the fifth in seven months, as buyers are returning to the market in search of bargains. The market for new homes appears to have bottomed in January, when sales hit 329,000.

“There are still negatives weighing on activity, such as high foreclosure rates that are likely to continue to rise and tight credit which will hinder a speedy recovery in the sector,” said Sireen Hajj, an analyst at Calyon Credit Agricole CIB. “Nonetheless the housing recovery appears on track.”

The new home sales report is the latest in a string of positive news for the housing market.
Yesterday, the closely-watched Case-Shiller index showed home prices rose in the second quarter for the first time in three years and were up for the second straight month in June.

Still, the median price for a new home was $US210,100 ($253,832) in July, down 11.5 per cent from $US237,300 the same month a year ago, according to the latest data. On a monthly basis, the price edged down 0.1 per cent from $US210,400 in June.

Oversupply has been one factor keeping prices down, though there was significant improvement in that area, as well. The ratio of houses for sale to houses sold in July was 7.5, the lowest level since April 2007 and down from 8.5 the month before. At the end of July, there were an estimated 271,000 homes for sale, the smallest number since March 1993.

June new-home sales were revised up to an annual rate of 395,000, a 9.1 per cent increase. Originally, the government had reported an 11 per cent jump in June sales to 384,000, though May sales were also revised up to 362,000 from 346,000.

Year over year, July new-home sales were still down 13.4 per cent, however.

Meanwhile, manufacturers’ orders for durable goods jumped 4.9 per cent last month to a seasonally adjusted $US168.43 billion. Economists had expected a 3 per cent gain.

Overall durable goods orders for June were revised up, estimated to have declined 1.3 per cent instead of the 2.2 per cent drop previously reported.

While the report suggests that the manufacturing sector has turned the corner, as well, economists saw some signs of weakness behind the positive headline figures.

Orders for non-defenee capital goods excluding aircraft – a key barometer for capital spending by US businesses – fell 0.3 per cent. That follows a 3.6 per cent gain in June.

“This suggests that the `green shoots’ are likely to be a temporary development,” said Steven Ricchiuto, chief economist at Mizuho Securities.