Data show U.S. growth picking up Leading indicators, new-home sales gain, as does retail sector

No signs of a slowdown

Federal Reserve chief says expansion is sustainable

March 05, 1997|By BLOOMBERG NEWS

WASHINGTON -- Sales of new homes unexpectedly soared in January to their highest level in a decade and the index of leading economic indicators rose, providing fresh evidence yesterday that U.S. growth might be accelerating.

Underscoring that, a private report showed retail sales rose in February, a sign consumer spending remains strong.

Federal Reserve Chairman Alan Greenspan, meanwhile, said the good times could continue, forecasting "continued sustainable economic growth accompanied by low and stable inflation."

Still, his comments carried a veiled warning of an interest rate increase if the economy shows signs of growing too fast. The Fed's role is to "foster the conditions most likely to produce" a healthy economy with low inflation, Greenspan said.

New-home sales rose 8.6 percent in January to a seasonally adjusted annual rate of 870,000, confounding economists' predictions of a downturn in housing.

"We've had very good sales in January and February, and unless there is some significant action by the Fed [to raise interest rates], I think that will continue," said Robert Strudler, chairman and chief executive officer at Houston-based U.S. Home Corp., one of the nation's largest homebuilders.

Separately, the Conference Board's index of leading economic indicators -- intended to project economic activity over the next half-year -- rose 0.3 percent in January. That makes the 12th straight month without a decline, the longest string since 1984.

"The numbers are very strong. It's the same story -- virtually no signs of an economy that's slowing," said John Burgess, chief fixed-income strategist for Bankers Trust Global Investment Management in New York. He sees a likelihood the Fed will have to raise rates to contain a growing threat of inflation from "above trend" growth. Friday's employment report could provide the trigger, he said.

The LJR Redbook survey of retail stores yesterday showed that sales rose 2.4 percent in February from January. That's "a little higher than people thought it would be," said Kevin Sluder at First Chicago Corp.

The benchmark 30-year Treasury bond fell almost one-half point, pushing the yield up more than 3 basis points to 6.86 percent. Stocks slumped as well, with the Dow Jones industrial average falling 66.20 points to close at 6,852.72.

The Fed hasn't changed interest rates in more than a year, since a quarter-point cut to 5.25 percent Jan. 31, 1996. The FOMC meets again March 25.

The housing market, coming off one of its best years ever, shows few signs of slowing. Most of January's increase in new-home sales came from a 63.4 percent jump in the Northeast. Sales rose 11.9 percent in the South, though they fell 10.3 percent in the Midwest and 5.9 percent in the West. January's figures follow a revised 0.5 percent rise in December sales, previously reported as a 1.0 percent decline.

The Commerce Department said January's numbers could appear to overstate actual sales because new methods of data collection are boosting the monthly figures. Department economists are attempting to dampen this effect by treating unusually large increases with caution and smoothing out the numbers.

Likewise, the index of leading indicators shows continued economic strength ahead. Of the 10 indicators that make up the index, seven made a positive contribution.

They were: an increase in manufacturers' orders for consumer goods, declining first-time jobless claims, a widening spread between the federal funds rate and the yield on the 10-year Treasury note, higher stock prices, growth in the money supply, an increase in building permits and rising orders for capital goods.

Pub Date: 3/05/97

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