Home Sales to Factories Signal Second-Half Weakness: Economy

Sales of existing U.S. homes unexpectedly dropped and manufacturing in the Philadelphia region contracted for a third month, showing economic weakness is extending into the second half of the year.

Home purchases slid 5.4 percent in June to a 4.37 million annual rate, an eight-month low, figures from the National Association of Realtors showed today in Washington. The Federal Reserve Bank of Philadelphia’s general economic index was minus 12.9 in July after minus 16.6 the month before. Readings of less than zero signal contraction.

The figures underscore Fed Chairman Ben S. Bernanke’s concerns that growth may be too feeble to reduce unemployment stuck above 8 percent since February 2009. Other reports today showed consumer confidence weakened, claims for unemployment benefits rose and an index of leading economic indicators declined more than forecast.

“We’ll have very slow growth,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York and the best forecaster of U.S. economic indicators in the two years through May, according to data compiled by Bloomberg News. “The excess supply of homes will weigh on housing for quite some time. Manufacturing is starting to suffer a bit. The labor market remains pretty soggy.”

Stocks rose amid better-than-estimated earnings. The Standard & Poor’s 500 Index climbed 0.3 percent to a two-month high of 1,376.51 at the close in New York. The yield on the 10-year Treasury note was little changed at 1.51 percent.

U.K. Economy

In the U.K., retail sales last month rose less than economists projected, reducing expectations Britain was able to recover from recession in the second quarter. Purchases including auto fuel gained 0.1 percent from May, the Office for National Statistics said today in London. The median forecast of 18 economists in a Bloomberg survey was for a 0.6 percent increase.

The median forecast of 76 economists surveyed by Bloomberg News called for a 4.62 million pace of existing home sales. Estimates ranged from 4.42 million to 4.75 million.

Slower job growth, stricter lending standards and competition from cheaper distressed properties may be impeding the market even with mortgage rates at all-time lows. The drop in home values since the last recession has also left many owners owing more than their property is worth, limiting their ability to relocate.

“Given that hiring has slowed down over the last few months, I don’t think it’s surprising we’re seeing sales soften,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Buyers are hesitant because they didn’t want to buy a home and see it depreciate within a year.”

2005 Peak

Existing-home sales, which are tabulated when a contract closes, have strengthened since reaching a low of 3.39 million at an annual rate in July 2010. In the buildup to the subprime lending collapse and recession, purchases reached a peak of 7.25 million in September 2005.

Economists forecast the Philadelphia manufacturing gauge would improve to minus 8, according to the median estimate in a Bloomberg survey. The region covers eastern Pennsylvania, southern New Jersey and Delaware.

Manufacturers are seeing slowing demand for exports as the European debt crisis and slowing growth in China and Brazil take a toll on overseas demand. At the same time, elevated unemployment is restraining consumer spending, while a drought in the Midwest threatens sales of farm equipment made by companies such as Deere & Co.

Nationwide Manufacturing

Economists monitor the Philadelphia factory report and other regional indexes for clues to the Institute for Supply Management’s national figures on manufacturing. The ISM will release its next report on Aug. 1. Manufacturing unexpectedly shrank in June for the first time in three years, the group said.

“The U.S. economy has continued to recover, but economic activity appears to have decelerated somewhat during the first half of this year,” Bernanke said in testimony to Congress this week. The Fed is “prepared to take further action as appropriate to promote a stronger economic recovery,” he said.

The Conference Board’s gauge of the outlook for the next three to six months decreased 0.3 percent after a revised 0.4 percent increase in May, the New York-based group said today. Economists projected the gauge would drop by 0.1 percent, according to the median estimate in a Bloomberg survey.

Labor Market

Limited wage gains and unemployment stuck above 8 percent risk further slowing consumer spending and leaving the U.S. more vulnerable to the global slowdown. Employers added 80,000 jobs to payrolls last month, fewer than economists forecast, while the jobless rate was unchanged at 8.2 percent. Retail sales unexpectedly fell for a third month in June, Commerce Department data showed this week.

“The economy in North America continues to be fragile as consumer confidence lags and job growth remains anemic,” Vernon Nagel, chairman and chief executive of Acuity Brands Inc., a lighting fixture maker, said during a July 2 earnings call. “We expect the macroeconomic environment for the balance of 2012 to continue to be influenced by external concerns, including fiscal and monetary policy in the U.S. and European debt crisis.”

More Americans than forecast filed first-time claims for unemployment insurance payments last week, reflecting volatility induced by the annual auto-plant retooling period.

Applications for jobless benefits increased by 34,000 to 386,000 in the week ended July 14, Labor Department figures showed today. Economists forecast 365,000 claims, according to the median estimate in a Bloomberg survey. The volatility in the numbers was due to a change in the timing of annual automobile plant layoffs, a Labor Department official said as the data were released.

Consumer Confidence

The slowdown in hiring is dimming consumer confidence as the third quarter begins. The number of Americans who see the economy getting worse was the largest in six months in July, according to a Bloomberg survey of consumers.

The share of households viewing the U.S. as heading in the wrong direction rose to 36 percent, the highest since January, from 33 percent in June. The Bloomberg monthly expectations gauge was minus 11, matching June as the lowest level since January. The weekly Bloomberg Consumer Comfort Index fell to minus 37.9 in the period ended July 15, the lowest in a month.

Two of the three components of the weekly consumer comfort index deteriorated. A measure of personal finances declined to a four-week low of 0.7 from 1.9, and an index of the buying climate eased to minus 41.7 from minus 41.5. A measure of Americans’ views of the state of the economy held at minus 72.8.

Political Divide

The Bloomberg consumer comfort readings underscore the U.S. political divide over the fiscal cliff looming at year-end, when tax cuts on wages, capital gains, dividends and estates are scheduled to lapse, today’s report showed. Democrats’ confidence exceeded Republicans’ for a record 17th consecutive week.

The comfort index for Democrats rose to minus 23.6 last week, while the gauge for Republican voters fell to minus 42, the lowest since February. The difference between the two groups is the widest on record. Among independents, a key swing group in this year’s presidential election, the measure dropped to minus 48.7, the weakest this year.