WRAPUP 5-US home sales bounce back, 3rd-quarter GDP raised

Wed Dec 22, 2010 5:34pm EST

Related Topics

 * Existing home sales rise 5.6 percent in November
 * Q3 growth raised to 2.6 percent pace on inventory build
 * Gain in consumer spending revised down to 2.4 percent
 * Core PCE price index increase smallest on record
 (Adds outlook from Bed Bath & Beyond and updates share price)
 By Lucia Mutikani
 WASHINGTON, Dec 22 (Reuters) - Sales of previously owned
U.S. homes rose in November, offering the latest sign the
economy was ending the year on a more solid footing after a
sluggish third-quarter.
 The Commerce Department on Wednesday said the economy grew
at an annual rate of 2.6 percent in the third quarter, a touch
above its earlier 2.5 percent estimate, but more of that output
ended up in warehouses.
 In a separate report, the National Association of Realtors
said existing home sales rose 5.6 percent in November to a 4.68
million unit annual pace. Sales were the highest since June but
were still at a depressed level and came in slightly weaker
than expected.
 Economists, who had expected GDP growth to be revised to a
2.8 percent rate, were little fazed and drew comfort from a
range of other recent data from retail sales to trade that
indicated activity has accelerated in the past few months.
 Many forecasters expect gross domestic product to expand at
a 3 percent to 3.5 percent pace in the fourth quarter.
 "We expect more economic momentum here at year end carrying
over into 2011; obviously housing remains impaired," said
Robert Dye, senior economist at PNC Financial Services in
Pittsburgh.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
  Existing home sales graphic: r.reuters.com/duf43r
Final GDP third-quarter:  r.reuters.com/maf43r
Mortgage applications:    r.reuters.com/gyx33r
For Insider video:
U.S. Commerce Department Acting Deputy Secretary Rebecca
Blank discusses the outlook for U.S. economic growth:
link.reuters.com/rew33r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 Stocks on Wall Street rose, and the benchmark Standard &
Poor's 500 index closed at its highest level since the collapse
of Lehman Brothers in September 2008. Prices for U.S.
government debt dipped, while the dollar edged lower against a
basket of currencies.
 TAX PLAN TO SUPPORT GROWTH
 The economy, which expanded at an anemic 1.7 percent rate
in the second quarter, is expected to receive support next year
from an $858 billion tax cut deal that led forecasters to raise
2011 growth estimates by as much as a percentage point.
 The tax plan is seen complementing the Federal Reserve's
program to buy $600 billion worth of government bonds to keep
borrowing costs tamped down and shore up the recovery.
 A key question hanging over the economy is whether the
level of inventories held by businesses is appropriate given
the pace of sales.
 Business inventories increased $121.4 billion in the third
quarter, revised from the $111.5 billion estimated previously.
Without the inventory buildup, the economy expanded at a 0.9
percent pace.
 Although the stockpiling implies some softness in the pace
of growth in the fourth quarter, some businesses may be happy
to add further to inventories given signs of strong sales in
October and November.
 The government revised down the third-quarter increase in
consumer spending to a 2.4 percent rate from 2.8 percent, but
all indications are that spending has since picked up.
 Retailer Bed Bath & Beyond reported quarterly results after
the market close and gave a strong outlook for the period
covering the holidays that underscored signs of strength in
consumer spending. Sales rose 11.1 percent in the fiscal third
quarter ended Nov. 27 and earnings topped Wall Street
expectations, sending the shares up 6 percent in after-hours
trade.
 Consumer spending accounts for more than two-thirds of U.S.
economic activity and the third-quarter pace was the fastest
since the first three months of 2007.
 "Consumer confidence has ticked up, retail sales have been
solid and auto sales have improved. Consumers are feeling more
comfortable with keeping pace with the overall economy, not
leading the economy," said PNC's Dye.
 HOUSING WEAK, INFLATION LOW
 There were also slight downward revisions to government and
business spending estimates, while the trade deficit was a bit
smaller than previously estimated and the contraction in home
building was little changed.
 Housing remains the economy's main weak spot.
 The Mortgage Bankers Association reported that mortgage
applications last week fell to their lowest level in nearly a
year as interest rates ticked higher. For details see
[ID:nNLALNE64R]
 "We are still in an environment of sluggish demand for
housing," said Michelle Meyer, a U.S. economist at Bank of
America Merrill Lynch, in New York. "The recent increase in
mortgage rates should weigh on affordability. However, that
should be countered somewhat by an improving economic
backdrop,"
 In the Commerce Department's GDP report, after-tax
corporate profits were revised down to show a 0.2 percent rise,
instead of a 1 percent rise. It was the weakest reading since
the fourth quarter of 2008 and marked a sharp slowdown from the
3.9 percent gain in the April-June period.
 The report also showed a lack of inflation pressure. The
Fed's preferred inflation measure, the personal consumption
expenditures price index, excluding food and energy, rose at a
revised annual rate of 0.5 percent. That was the smallest
increase since records began in 1959.
 (Additional reporting by Corbett Daly in Washington and Julie
Haviv and Dhanya Skariachan in New York; Editing by Neil
Stempleman and Leslie Adler)


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