Sales of new homes took surprise dip in January

Gauge of manufacturing unexpectedly climbed

March 01, 2005|By BLOOMBERG NEWS

New-home sales unexpectedly fell 9.2 percent in January as overall consumer spending remained unchanged.

But a widely watched measure of manufacturing activity improved in February, prompting one economist to say that "the baton has been passed" to businesses as the leading drivers of economic growth.

"Consumers are no longer playing the lead role that they did in the economy," said Richard DeKaser, chief economist at National City Corp. in Cleveland, the eighth-biggest U.S. bank.

The Commerce Department said yesterday that U.S. new-home sales unexpectedly declined to a 1.106 million annual rate in January. December sales were revised higher, to a 1.218 million annual rate.

Sales of new homes fell in three of the four U.S. regions. They slumped a record 40.3 percent in the Midwest, to 145,000 houses at an annual rate, the slowest since August 2000. The number of new homes for sale rose to a record 438,000, and the median number of months those homes have been for sale increased to 4.4 in January from 4.1.

The median sales price declined to $199,400, the lowest since December 2003, from $229,700, though economists noted that price trends can be skewed by the mix of homes sold in a particular month.

"It's a correction year, but the floor is not going to drop out of the housing market in this environment," Diane Swonk, chief economist at Mesirow Financial Inc., in Chicago. "Mortgage rates are going to go up a little bit and job creation is going to offset that."

The most recent economic forecast by the National Association of Realtors calls for new-home sales to slow this year to 1.11 million, which would be the second-best ever.

Consumer spending was unchanged last month after a 0.8 percent rise in December, the Commerce Department said. Sales of new vehicles were lower in January than in December as automakers reduced discounts and held down spending.

In the business sector, the National Association of Purchasing Management-Chicago's index unexpectedly rose to 62.7 from 62.4 in January. Readings higher than 50 indicate growth.

Investors and economists watch the Chicago report for clues about the direction of U.S. manufacturing. The Federal Reserve Bank of Chicago says its district, which includes Indiana and Michigan, produces 40 percent of U.S. motor vehicles, 35 percent of its steel and almost half of its farm equipment, making the region the center for durable-goods manufacturing.

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