Construction and Home Sales in U.S. Slowed in May

Construction and Home Sales in U.S. Slowed in May
By CHRISTINE HAUSER
copyright by The Associated Press
Published: July 1, 2010
http://www.nytimes.com/2010/07/02/business/economy/02econ.html?_r=1&hp


A slowdown in the housing and construction markets contributed to a sluggish outlook for the economy Thursday, highlighting the significance of government stimulus and job creation.

According to new statistics, pending homes sales and construction both declined in May. In addition, figures showed that while manufacturers recorded some gains in June, the pace of activity in that sector slowed last month compared with May and also came in slightly below estimates.

“The idea of a growth slowdown in the second half of 2010, a long held belief of ours, is catching on as the data increasingly reinforces this idea,” said Dan Greenhaus, the chief economic strategist for Miller Tabak and Company.

The tranche of economic indicators were the latest regular monthly features that economists and analysts watch carefully to gauge the pace of the economic recovery. But all eyes are on the monthly jobs figures scheduled for release Friday, which are expected to show a 125,000 decrease from 431,000 in nonfarm payrolls for June and a rise to 9.8 percent from 9.7 percent in the unemployment rate.

Reflecting on the housing figures, the National Association of Realtors chief economist, Lawrence Yun, said in a statement that job creation was one of the key elements for whether the housing market can stand on its own without federal stimulus.

The association said its index, which tracks pending home sales, fell to its lowest level in May after the government tax credit for home buyers expired. The index for contracts signed in May fell by 30 percent to 77.6, down from 110.9 in April. The index is down nearly 16 percent from where it stood in May 2009, the association said.

The decline was a reversal of three months of increases, when home buyers had rushed to make use of the tax credit, which had been put into place as part of a government stimulus measure to address the housing crisis. It also represents the lowest level since the association started tracking such contract activity as a forward looking indicator in 2001.

“The key test on whether the housing market can stand on its own without stimulus medicine will depend critically on private sector job creation in the second half of the year,” Mr. Yun said.

The association said that many of the closings had been delayed because of the rush of buyers, and the extra time it took to process short sales. But there could be a reprieve for the backlog. The organization said that as many as 180,000 buyers who signed contracts by April 30 could have missed the June 30 deadline to complete the sale and qualify for the credit.

But on Wednesday night, Congress approved legislation to extend the closing deadline until September 30, meaning that buyers now have an extra three months to complete their purchases, and therefore qualify for up t0 $8,000 in federal tax credits.

“Demand has fallen off a cliff in the wake of the tax credit expiration,” said Mike Larson, real estate and interest rate analyst at Weiss Research, in a research note. “And with so many Americans unemployed or underemployed, the housing market is going to keep hurting,” he added.

Ahead of the main jobs figures, a weekly employment indicator was no cause for optimism. Initial claims for unemployment benefits were higher last week the second time in three weeks, the Labor Department said Thursday, a sign that layoffs are rising. It said new claims for jobless benefits rose by 13,000 to a seasonally adjusted 472,000. Analysts expected a small decline, according to a survey by Thomson Reuters.

The construction sector will also depend on the labor market. Spending on construction in May fell just slightly, declining 0.2 percent after a 2.3 percent rise in April. Analysts had forecast a 0.5 percent decline for May.

Private, non-residential spending fell 0.6 percent after a 0.8 percent rise the month before. Construction spending on new homes and apartments shrank 0.4 percent in May after a 5.0 percent spike in April. Public projects outlays increased 0.4 percent in May after rising 1.6 percent in April.

Manufacturing has been one of the few bright spots in the economic recovery. In a survey representing 18 manufacturing industries, the Institute for Supply Management found that employment was still expanding in the sector but the rate of that growth slowed in June by about 2 percentage points compared with May.

Overall, the index used to measure manufacturing shrank by 3.5 percentage points to 56.2 in June, mainly because orders and production slowed down, the ISM said.

Industries such as plastics and rubber products; transportation equipment, and fabricated metal products reported growth, while apparel, wood products and machinery contracted.