Existing home sales, consumer confidence fall Figures seem to point to a cooling in the economy in the second quarter

Economy

May 27, 1998|By BLOOMBERG NEWS

WASHINGTON -- U.S. sales of previously owned homes fell in April and consumer confidence edged lower this month, signs the economy may be throttling back from the heated pace it reached earlier this year.

Existing home sales declined 2.5 percent to an annual rate of 4.77 million units last month, the National Association of Realtors reported yesterday.

Also, the Conference Board said consumer confidence declined to 135.2 in May from 137.2 a month ago.

"The economy is cooling off in the second quarter," said Gary Thayer, senior economist at A.G. Edwards & Sons Inc. in St. Louis. "It fits into the scenario that the Federal Reserve should wait and see what's going to happen before they change rates."

While both economic indicators declined, they stayed close to ,, historic highs. Home resales for April receded from a record annual rate of 4.89 million units in March, and matched the level of sales set in February. The May confidence index was just below February's 30-year high of 137.4.

That suggests the economy is still expanding, though at a pace below the first quarter's 4.2 percent annual rate, the fastest in a year. Thayer, for example, expects growth to slow to 2 percent in the second quarter.

Growth in the first three months of the year is expected to be revised up to 4.4 percent when the Commerce Department releases its latest estimate of gross domestic product later this week, according to Bloomberg News.

The decline in consumer confidence this month reinforced expectations of slower growth. Investors and Fed policymakers watch consumer spending closely because it makes up two-thirds of the economy.

The Conference Board's index gauging consumer expectations for the next six months fell to 112.0 in May from 115.8 in April, while the index tracking assessment of present conditions rose to 170.0 this month from a revised 169.3 last month.

And so far this month, consumers appear to be making their way to the stores at a slower pace than they did in April, according to weekly industry reports. In the first two weeks of May, sales at stores open at least a year fell 0.3 percent from the pervious month, according to LJR Redbook Research.

Such signs should be reassuring to Fed policymakers, who have left the overnight bank lending rate at 5.50 percent for over a year now. U.S. central bankers, who meet next on June 30-July 1, left the rate unchanged again at their meeting last week.

Home resales declined in three regions in April. In the West, existing home sales rose 1.0 percent, while resales fell 2.4 percent in the Midwest, 4.2 percent in the South and fell 4.1 percent in the Northeast.

Still, even if the surge in housing doesn't continue, the industry itself sees no significant letup in business.

Existing home sales have exceeded an annual rate of 4.25 million units for nine straight months. During the first quarter, resales were 14 percent stronger than in the same three-month period a year ago. Sales of existing homes have increased for six consecutive quarters.

Given the backdrop of a 28-year low unemployment rate, strong income growth, high consumer confidence and favorable interest rates, the housing market has put in some strong months. "I see nothing that will change that picture in 1998," said Robert Moles, chief executive officer at Century 21 Real Estate, a unit of Cendant Corp. in Parsippany, New Jersey.

Steady low mortgage rates have helped. The average rate on a 30-year fixed mortgage averaged 7.15 percent in April, little changed from 7.13 percent during March. Rates have crawled higher after reaching a four-year low of 6.89 percent in early January. Still, rates have stayed close to 7 percent for the past several months.

Pub Date: 5/27/98

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