Jan. 26 (Bloomberg) -- Sales of new homes and orders for durable goods jumped in December, suggesting the weakest parts of the U.S. economy are on the mend.

Home purchases rose 4.8 percent to an annual pace of 1.12 million, the fastest since April, the Commerce Department reported today. Orders to factories for goods made to last at least several years rose 3.1 percent, the department also said.

The figures indicate that housing and manufacturing are past the worst of a downturn that prompted some economists to predict a recession and interest-rate cuts by the Federal Reserve. The reports also suggest that central bankers, who meet next week, will signal they're reluctant to either lower or increase borrowing costs.

``The Fed is likely to read this as being in line with or better than they were hoping for,'' said Nigel Gault, director of U.S. research at Global Insight Inc. in Lexington, Massachusetts. ``They're going to say let's keep things exactly where they are on interest rates.''

Economists had forecast that new home sales would rise to an annual rate of 1.052 million, from an originally recorded 1.047 million in November, according to the median of 67 estimates in a Bloomberg News survey.

Allan Hubbard, director of the White House's National Economic Council, said in an interview that it's ``our sense that housing has bottomed out and has started growing again.''

Incentives and Weather

Buyers were lured back into the market after builders cut prices and sweetened incentives. Mild weather may have helped as well. Last month was the warmest December since 1957, according to the National Climatic Data Center in Asheville, North Carolina. The sales increase may give companies such as Lennar Corp. reason to be more optimistic on the outlook for this year.

Chris Low, chief economist at FTN Financial in New York, said some investors viewed warmer December temperatures as the main reason for the sales gain.

``Until we see whether the strength can carry into January, investors are not convinced that the economy has in fact turned,'' Low said.

Fed policy makers may also need more data to better gauge the direction of the economy, which explains why they'll likely keep their benchmark lending rate at 5.25 percent for a fifth time when they meet Jan. 30-31, according to all 104 economists surveyed by Bloomberg News.

The median price of a new home fell 1.5 percent in December, to $235,000 from $238,600 a year earlier. The median price of $245,300 for all of 2006 was up 1.8 percent from 2005.

Homes for Sale

The number of homes for sale at the end of the month fell to 537,000, the fewest since January, from 542,000 in November. That left the supply of homes at the current sales rate at 5.9 months' worth, compared with 6.1 months in November.

Builders are offering more incentives, such as lower mortgage rates through their affiliates and free kitchen upgrades, to reduce inventory.

Sales rose in three of four regions, led by 27 percent increases in both the Northeast and Midwest. Sales in the South rose 0.3 percent. They declined 4.4 percent in the West.

A report yesterday from the National Association of Realtors showed that sales of existing homes fell 0.8 percent in December to a 6.22 million pace.

New-home sales are considered a more timely barometer of the housing market because they are recorded when a contract is signed. Most sales of existing homes are counted when a contract closes, usually a month or two later.

Incentives and Demand

Sales of existing homes may be depressed longer than those of new homes because builders are more likely to reduce prices and sweeten incentives to reignite demand, economists said.

Lennar Corp., the fourth-largest U.S. homebuilder, said last week that profit may rise this year, helped by the robust economy. The Miami-based company reported its first quarterly loss in at least a decade for the three months ended Nov. 30.

Provided the ``current environment of strong employment, low interest rates and a healthy economy continues,'' Lennar will meet or exceed 2006 earnings, Chief Executive Officer Stuart Miller said in a Jan. 17 statement.

The Commerce Department's durable-goods report also showed that orders excluding transportation equipment, such as Boeing Co. jets, increased 2.3 percent, the biggest gain since March 2006. Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 2.4 percent, the most since March 2006.

`Turning Around'

The report is ``a positive sign that the manufacturing slump is a pause, not a recession, and is starting to turning around,'' said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, in Arlington, Virginia. ``It appears that the strength in consumer income growth and the positive capital-spending cycle will save the day.''

The durable goods report showed that capital goods shipments, used in calculating gross domestic product, fell 0.3 percent after rising 2.1 percent. They fell 1.4 percent in October, suggesting business spending over the quarter cooled.

The orders data point to a rebound in manufacturing entering the new year after a slowdown earlier in the quarter limited economic growth. The rise in orders suggests companies have had some success working off excess inventory, setting the stage for more production in coming months.

Spending on equipment and software increased at an annual rate of 7.7 percent in the third quarter after a 1.4 percent decrease in the prior three months, the Commerce Department's Dec. 21 report on gross domestic product showed. The economy expanded at a 2 percent annual pace in the third quarter, the slowest last year, and may have grown at a 2.5 percent pace in the fourth quarter, according to a Bloomberg survey.

Machinery Orders

Orders for machinery rose by the most since March 2006, and demand increased for communications equipment, and fabricated and primary metals.

Motor vehicle and parts bookings jumped 6.8 percent in December, the biggest gain since August 2004, after rising 2.3 percent in November, today's report showed. Auto sales perked up in December, a sign that inventories are being worked off at automakers including Ford Motor Co. and General Motors Corp.

Orders for commercial aircraft increased 27 percent after rising 3.8 percent in November. Chicago-based Boeing Co. received 217 orders in December, compared with 58 in November, according to information on the company's Web site. Deliveries were unchanged at 34 in the same month.

To contact the report on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: January 26, 2007 14:20 EST