Data hints economic soft patch may be easing
WASHINGTON (Reuters) - Sales of previously owned U.S. homes climbed in August from a 13-year low, more evidence the economy was stabilizing after a sharp summer slowdown, even though new claims for unemployment benefits rose last week.
Fears that the slowdown could tip the economy back into a new recession were also assuaged by a third report on Thursday showing a gauge of future economic activity increased 0.3 percent in August after a 0.1 percent gain in July.
"The reports are consistent with the view that the mid-year down shift is close to over. We came off the tracks a little bit and we are slowly finding our way back," said Aaron Smith, a senior economist at Moody's Economy.com in West Chester, Pennsylvania.
Sales of existing homes increased 7.6 percent to an annual rate of 4.13 million units, a touch above market expectations. Sales had plummeted 27 percent in July to the lowest level since 1997 after a tax credit for homebuyers expired.
While they rose last month, the pace was still the second lowest in 13 years.
Separately, initial claims for state unemployment benefits increased 12,000 to 465,000, the Labor Department said, breaking two straight weeks of declines. Financial markets had forecast claims steady at 450,000.
Stocks on Wall Street ended lower as investors opted to focus on the rise in claims. Prices for U.S. government debt posted modest gains. The dollar fell against the yen.
The recovery from the economy's longest recession since the 1930s fizzled in the second quarter and growth remains sluggish with unemployment stubbornly high.
The Federal Reserve on Tuesday said it was prepared to inject more money into the economy if needed to shore up the recovery and avert a damaging downward spiral in prices.
Stimulating the lethargic economy is also a major challenge for President Barack Obama. A wave of voter anger over the 9.6 percent unemployment rate could cause his Democratic Party to lose control of Congress in mid-term elections on November 2.
Obama's efforts to spur growth and job creation got a lift as a $30 billion small business lending bill cleared Congress. Obama is expected to sign it on Monday.
In a campaign manifesto unveiled on Thursday, Republicans, who are tipped by opinion polls to win control of the House of Representatives and gain Senate seats will vow to slash spending and stop "job-killing tax hikes.
"One of the biggest reason why companies are reluctant to hire is lack of faith that revenue and profitability could be sustained going forward," said Guy Lebas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
Analysts were little fazed by the unexpected rise in claims for jobless benefits as they remained well below the nine-month high of 504,000 touched in mid-August, indicating they were not deteriorating. Claims also tend to rise in the week following a holiday.
Last week's claims data covered the survey period for the government's closely watched employment report for September, scheduled for release on October 8.
The four-week average of new jobless claims, considered a better measure of underlying labor market trends, fell 3,250 to 463,250, the lowest since July 31. Analysts noted the moving average was about 21,000 below the reading during the survey period for August payrolls.
"As such, a modest improvement in the four-week moving average points to a moderate increase in September private payrolls," said Yelena Shulyatyeva, an economist at BNP Paribas in New York. The private sector added 67,000 jobs in August.
The rise in existing home sales in August was the latest sign the housing market was starting to stabilize after steep declines following the end of the homebuyer tax credit in April. The increasing sales pace lowered the supply of homes on the market to 11.6 months' worth from 12.5 months in July.
But analysts cautioned progress would be slow in the absence of a significant labor market improvement.
"The report shows some stabilization in the housing sector. However, we are still bouncing along the bottom," said Mitchell Hochberg, principal at Madden Real Estate Ventures in New York. "Shadow inventory and months of supply will keep downward pressure on prices for the foreseeable future."