June new-home sales break record Real wages up by biggest margin in decades

July 31, 1998|By BLOOMBERG NEWS

WASHINGTON -- Americans bought new homes at a record pace in June, a sign that the economy will keep expanding in the months ahead, economists said yesterday.

Sales of new single-family homes rose 3.8 percent in June, which translates to an annual rate of 935,000 units, the Commerce Department reported. That is the fastest sales pace on record and topped May's revised 1.1 percent increase.

"Consumers remain confident, willing to borrow and unconcerned about the potential impact of Asia on the economy," said Ian Shepherdson, chief economist at HSBC Markets Inc. in New York.

Helping push home sales higher are the highest increases in real wages in decades.

The employment cost index -- the broadest measure of wage, salary and benefit costs -- rose 0.9 percent in the second quarter, up from a 0.7 percent increase in the first quarter, the Labor Department said yesterday.

Wages and salaries also increased 0.9 percent in the second-quarter. For the 12 months that ended June 30, wages rose 4 percent. After adjusting for a decade-low inflation rate of 1.7 percent over the same period, real wages rose 2.3 percent.

"There are very few living Americans who have ever had things better than they are now," said former Federal Reserve Governor Lyle Gramley, a consulting economist at the Mortgage Bankers Association of America.

June marked the 10th straight month in which new-home sales exceeded an 800,000-unit annual rate, the longest such run ever, according to the Commerce Department.

Demand has left builders scurrying to increase supply. The inventory of new homes for sale at the current sales pace fell to a 3.7-month supply in June, the lowest ever, from a 3.8-month supply in May. The low supply should keep builders busy for the rest of the year, builders and analysts predict.

The strength in housing -- sales of existing homes in June were close to a record -- is good news for the economy because homebuyers continue to spend on appliances, furniture and fixtures.

"Business is brisk. There are no signals or storm clouds on the horizon that lead us to believe demand will slow down," said Steven J. Hilton, managing director at Monterey Homes Corp. in Scottsdale, Ariz.

Overall U.S. compensation costs, including wages and benefits, rose at a 3.5 percent rate for the 12 months that ended June 30, faster than the 3.3 percent increase for the 12 months that ended March 30 and faster than the 2.8 percent increase for the 12 months that ended June 30, 1997.

Federal Reserve Board Chairman Alan Greenspan has said that compensation can rise without pushing inflation higher, so long as productivity improves, and that is what is happening, said Elias Bikahazi, chief U.S. economist at I.D.E.A. in New York.

Companies are paying about 3.5 percent more for workers, but productivity has been rising at about a 2 percent annual pace. The rest would come from price increases or cuts in corporate profits.

Because the difference is only 1.5 percent, "the trend may be going in the wrong direction, but in terms of the levels there is nothing terribly worrisome at this point," said Bikahazi.

Pub Date: 7/31/98

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