Home sales rise 13.3% 756,000 transactions in U.S. last year were most since 1978

Economy growing slowly

Leading indicators up 0.1% in December

retail sales sluggish

February 05, 1997|By BLOOMBERG BUSINESS NEWS

WASHINGTON -- Sales of new single-family homes rose last year to their highest level in nearly two decades while the overall economy posted slow and steady growth heading into 1997, new reports showed yesterday.

Total new homes sales rose 13.3 percent last year to 756,000, even though sales fell 1.0 percent in December, the Commerce Department said. That reversed the 0.4 percent decline of 1995 and was the strongest yearly performance since 1978, when sales reached 817,000, a government spokeswoman said.

Meanwhile, the Conference Board's index of leading economic indicators, a gauge of future economic growth, posted a 0.1 percent increase during December after rising a revised 0.2 percent in November.

Builders are optimistic about 1997. "We're still seeing attractive interest rates, full employment and high levels of consumer confidence," said Robert Strudler, chief executive officer of U.S. Home Corp. in Houston.

Joel Rassman, chief financial officer for Toll Brothers Inc. of Huntington Valley, Pa., said: "Though demand was strong last year, I don't think it's eaten into too much pent-up demand."

And two other reports yesterday suggested that retail sales remain sluggish. Chain stores tracked by Bank of Tokyo-Mitsubishi/Schroder Wertheim reported no change in sales last week, while retailers followed by LJR Redbook Research reported a 0.5 percent sales decline from a week earlier.

The economic reports came as Federal Reserve officials started a two-day policy meeting, in which they're likely to leave the overnight bank-lending rate unchanged at 5.25 percent.

The 0.1 percent increase in the leading indicators suggests that America's economy in the first quarter will not sustain the faster-than-expected growth pace of 4.7 percent experienced during the fourth quarter of last year, analysts said.

The indicators signaled subdued economic growth during most of 1996. The last time the leading indicators were above November's 0.2 percent pace was in May, when they rose 0.3 percent.

The leading index, which was changed in November, monitors a variety of economic gauges -- including the recently added spread between the yield on the 10-year Treasury note and the federal funds rate.

The difference between long- and short-term interest rates helps forecast coming changes in monetary policy.

Of the 10 indicators, four made a positive contribution. They were: Growth in the money supply; a longer factory workweek, 42.0 hours in December compared with 41.7 in November; a wider spread between the rate on the 10-year Treasury note and the overnight bank lending rate; and higher stock prices.

Three others made a negative contribution: A increase in first-time jobless claims, a monthly average of 353,800 in December compared with 336,700 in November; a decline in factory orders for consumer goods; and weaker consumer expectations about the economy.

The remaining three indicators showed no change. They are permits for new housing construction, factory orders for nondefense capital goods and the pace of deliveries.

While 1996 was a strong year for housing, snow and flooding in the West contributed to December's home sales decline to a seasonally adjusted annual rate of 783,000. In November, sales soared a revised 17.7 percent to a 791,000. Initially, the government said November home sales rose 14.2 percent. Before today's report, analysts expected a 3.2 percent decline for December.

By region, sales in the West dropped 16.7 percent to 185,000 in December; fell 6.7 percent in the South to 335,000; and slipped in the Northeast to 87,000.

In the Midwest, sales rose 46.7 percent in December to 176,000, the highest level since December 1993.

The supply of homes for sale nationwide -- a key gauge of consumer demand -- decreased by 0.9 percent in December to an annual rate of 327,000.

The average price of a new home fell to $173,200 in December from $174,200 during November, and the inventory of vacant homes rose to a 5.2-month supply -- less than the six- to seven-month supply total that suggests real estate markets are saturated.

Pub Date: 2/05/97

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