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New home sales slump to lowest level since 1963 fuelling market anxiety

Text by News Wires

Latest update : 2010-08-25

After yesterday’s worrying data on existing home sales in the USA, the Commerce Department Wednesday released new homes sales figures, which showed the sector in July slumped to its lowest level since 1963.

AFP - New US homes sales fell to their lowest level in about half a century and manufacturing orders came in far worse than expected, the government said Wednesday, fueling concerns the world's largest economy could slip back into recession.
   
Adding to the recent slew of depressing data, the Commerce Department said sales of new single-family houses unexpectedly slumped 12.4 percent in July to 276,000 units from a month earlier.
   
July sales broke below the 300,000 mark for the first time in the data's 47 years of history, baffling most economists who had expected sales to rise to 334,000 units.
   
The sagging sales showed that the housing market, which was at the epicenter of the financial crisis that dragged the country into recession, remains weak despite attractive prices and record low borrowing costs.
   
The number of unsold new homes are at the lowest since September 1968 while the average price fell to 235,300 dollars, the lowest reading since March 2003.
   
The latest data came a day after an industry group said existing US home sales -- considered the core of the residential real estate market -- plunged a whopping 27.2 percent in July to levels unseen in more than a decade.
   
"The potential for housing to drag the economy back into recession is also heightening," warned Moody's Economy.com analyst Celia Chen.
   
A housing mortgage meltdown plunged the US economy into the worst recession in decades in December 2007.
   
The economy started growing again since the middle of the year, but expansion has slowed in recent months against a high unemployment rate to the extent that some economists warn the country could be trapped in a "double-dip" recession.
   
Reflecting the gloom, the government is expected on Friday to significantly revise downward the economic growth chalked up in the second quarter.
   
"As we stare into the economic double-dip abyss, there are still some low hanging fruit to be picked by policy makers to aid the economy and business," said analyst Andrew Busch of BMO Capital Markets, suggesting the government cut foreign tax earnings for US companies in a bid to boost growth.
   
In another indication of a faltering economy, the Commerce Department said orders for big-ticket items in the United States rose in July but were much lower than expected.
   
New orders for manufactured durable goods -- items such as planes, cars, refrigerators and computers -- increased 0.3 percent to 193 billion dollars  following two consecutive monthly decreases, the department said.
   
Most economists had expected orders to rebound by a stronger 3.0 percent.
   
The small July rise came mainly due to strong aircraft orders.
   
Outside of transportation equipment, orders decreased 3.8 percent.
   
Core capital orders -- a proxy for future business investment -- suffered a steeper decline, by 8.0 percent.
   
"Business spending on capital equipment was one of the few pockets of strength for the US economy and here too momentum is fading," noted economist Aneta Markowska of Societe Generale.
   
She said the latest durable data "reaffirms the recent weakness in regional manufacturing surveys and suggests that the resiliency in industrial production figures is unlikely to last."
   
Core capital goods shipments -- the component that actually feeds into the country's gross domestic product -- fell by just 1.5 percent but the drop in orders suggests shipments should continue to slide, said Nomura economist Zach Pandl.
   
Following the goods orders data, Nomura revised down its third quarter US GDP growth estimate to 1.5 percent from 1.7 percent previously, Pandl said.
   
The government is expected to sharply revise down economic growth in the second quarter to 1.4 percent from 2.4 percent previously, when it presents an economic report on Friday.
 

Date created : 2010-08-25

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