Home Sales Show U.S. Pickup as Factories Expand: Economy

The economy in the U.S. took a step forward as home sales unexpectedly climbed, manufacturing accelerated and the outlook for the second half of 2014 brightened.

Purchases of previously owned homes rose in July to a 5.15 million annualized pace, a 10-month high, according to data from the National Association of Realtors in Washington. A factory gauge climbed in August to the loftiest level in more than four years, the index of leading indicators jumped last month and fewer Americans than projected filed claims for jobless benefits last week, other reports showed.

“The economy has got good momentum,” said Michelle Girard, chief U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “The second half of the year is going to look a good deal better than the first half.”

Employment growth, historically low mortgage rates and more properties from which to choose are giving would-be homebuyers the confidence to take the plunge, just as improving business investment is probably behind the pickup in manufacturing. The data come as Federal Reserve Chair Janet Yellen prepares to address central bankers tomorrow on the job-market outlook, which may provide clues on policy makers’ next move.

The drop in jobless claims “is pointing to a labor market that’s gaining traction,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York. More data like this “will certainly mean that the Fed will be encouraged to move sooner rather than later” to raise interest rates, he said, although “the Fed needs a body of evidence greater than what they have now for them to feel decisive in one direction or the other.”

Fed Minutes

At their July meeting, Fed officials raised the possibility they’ll increase the target interest rate sooner than anticipated in light of labor-market strength, according to meeting minutes released yesterday. Weak wage growth and low inflation have given the Fed room to hold the target rate near zero, which has kept mortgage rates low.

Stocks rose, sending the Standard & Poor’s 500 Index to an all-time high, as data boosted optimism in the economy amid speculation the Fed will continue to support the recovery. The S&P 500 climbed 0.3 percent to 1,992.38 at the close in New York.

The news elsewhere wasn’t as positive, as rising political tensions threatened to weaken global trade, contributing to a slowing in manufacturing in the euro area and China, other reports showed.

In the U.S., the Markit Economics preliminary manufacturing index for August jumped to 58, the highest since April 2010, as production, orders and employment picked up, the London-based group said today. Readings exceeding 50 in the purchasing managers’ gauge indicate expansion.

Philadelphia Fed

A regional report corroborated the improvement as the Federal Reserve Bank of Philadelphia’s factory index climbed to 28 this month, the highest level since March 2011 and the second-highest in the past decade. Readings greater than zero signal growth in the region covering eastern Pennsylvania, southern New Jersey and Delaware.

The gains in manufacturing are being reflected in an improving job market. Jobless claims fell by 14,000 to 298,000 in the week ended Aug. 16, according to Labor Department figures. The report coincides with the period the government surveys employers to calculate monthly payroll growth. The employment report for August will be released on Sept. 5.

“There’s a good chance we’ll get another solid month of payrolls,” said Guy Berger, an economist at RBS Securities, who projected 295,000 claims. “Lower layoffs, together with faster hiring, mean better prospects for consumer spending.”

Brightening Outlook

The drop in firings is one reason the second half of 2014 is looking sunnier. The Conference Board’s index of leading indicators rose in July by the most in four months, according to another report today. The gauge of the outlook for the next three to six months climbed 0.9 percent after a 0.6 percent gain in June, the New York-based group said.

Seven of the 10 indicators in the leading index contributed to the increase last month, led by declining jobless claims and more building permits. The gauge has jumped 8.2 percent over the past six months at an annualized rate, the most since April 2011.

Builders are also showing signs of life after a construction lull at the start of the year, a sign that the market’s momentum is sustainable.

Housing is “going to continue to pull up,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who accurately forecast the increase in existing home sales. “The labor market continues to improve, interest rates are low, affordability is high.”

Survey Results

The median forecast of 74 economists in a Bloomberg survey projected purchases would cool to a 5.02 million pace last month. Estimates ranged from 4.85 million to 5.17 million. The June figure was revised to 5.03 million from a previously reported 5.04 million.

The number of properties for sale climbed to 2.37 million, the most since August 2012, the real estate agents’ report showed. Inventory was up from 2.24 million a year earlier.

The increase in supply is coming about as prices recover and an improving economy gives sellers confidence they’ll find buyers, the group said.

“More inventory in my view will mean more home sales,” NAR Chief Economist Lawrence Yun said at a news conference as the figures were released. “We are in a multiyear housing market recovery.”

The median price of an existing home rose 4.9 percent to $222,900 in July from $212,400 a year earlier, today’s report showed.

Distressed Sales

Distressed property sales, which include foreclosures and short sales where the lender agrees to accept less than the value of the mortgage, accounted for 9 percent of the total last month, the least since records began in 2008, the group said.

“We’re moving from a market that was driven by the overcorrection, driven by distressed asset sales, to a market that’s returning to being based on the fundamentals,” Budge Huskey, president and chief executive officer of Coldwell Banker Real Estate, a brokerage firm based in Madison, New Jersey, said in an interview. “It’s jobs and wages, it’s traditional homebuyers and particularly first-time buyers.”

Existing home sales, which are tabulated when a purchase contract closes, are recovering from a 13-year low of 4.11 million in 2008 after reaching a record 7.08 million in 2005.

The housing rebound had been giving mixed signals this year after a frigid and snowy winter and gradual improvement in the labor market. Residential construction starts increased in July to an annual pace of 1.09 million units, the highest level in eight months, as permits for future projects advanced 8.1 percent.

Cheaper borrowing costs have helped. The average 30-year, fixed-rate mortgage was 4.10 percent in the week ended Aug. 21, the lowest this year and down from 4.53 percent at the start of January, according to data from Freddie Mac in McLean, Virginia.

Before it's here, it's on the Bloomberg Terminal.