April 27, 2013 / 4:55 AM / 5 years ago

Growth falls short of forecasts, weakness ahead

WASHINGTON (Reuters) - Home prices rose in February at their fastest annual rate in almost seven years, a fresh sign the housing market recovery will help counter the drag on the economy from government belt tightening.

The S&P/Case Shiller index of 20 metropolitan areas showed single-family home prices rose 9.3 percent in February from a year earlier, according to a report released on Tuesday.

The data reinforces the view that rising home prices could make Americans feel better about spending this year, helping counter a hit to economic growth from tax hikes and government spending cuts. That hit is already being felt.

“The steady rise in home prices reinforces the current narrative of continued progress in the housing market,” said Millan Mulraine, an economist at TD Securities in New York.

Other recent data has pointed to less steam building in the housing market, but rising prices should give construction firms more incentive to build new homes and increase inventories. A dearth of homes on the market has been a recent factor holding back sales.

The S&P/Case Shiller index showed prices gained 1.2 percent in February on a seasonally adjusted basis from January, topping forecasts for a 0.9 percent gain.

Following a spectacular collapse that fueled the 2007-09 recession, the housing sector appears to have turn a corner and adjusted prices have been rising since February 2012.

Major stock indexes were lower in early trade.

Crews load and unload consumer products at the Port of New Orleans along the Mississippi River in New Orleans, Louisiana June 23, 2010. REUTERS/Sean Gardner

A separate report showed labor costs rose less than expected in the first quarter and pointed to benign wage inflation, a potential sign the Federal Reserve has space to continue its monetary stimulus program.

The Employment Cost Index increased 0.3 percent in the first quarter, the Labor Department said on Tuesday. However, the data may have been distorted by an error found in benefits data for sales and office workers, the department said.

Containers await departure as crews load and unload consumer products at the Port of New Orleans along the Mississippi River in New Orleans, Louisiana June 23, 2010. REUTERS/Sean Gardner

Workers’ benefits rose 0.1 percent during the quarter, the slowest pace since 1999. A Labor Department analyst said the data error probably did not have a major impact on that series. The department said benefits data for sales and office jobs had been left out of the calculations for the increase in overall benefits.

Analysts polled by Reuters had expected a 0.5 percent increase in overall labor costs. In the 12 months through March, compensation costs advanced 1.8 percent.

Fed policymakers on Tuesday begin a two-day meeting on monetary policy, with results scheduled to be announced on Wednesday. A recent slew of weak growth data has raised expectations the Federal Reserve will keep its pace of bond buying at $85 billion a month.

The Fed has kept overnight interest rates near zero since late 2008 and it has tripled its balance sheet to about $3 trillion through purchases of securities, which are aimed at pushing longer-term borrowing costs lower.

Wages and salaries, which account for 70 percent of employment costs, increased 0.5 percent in the first quarter, up from a 0.3 percent gain in the fourth quarter.

They were up 1.6 percent in the 12 months through March.

Reporting by Jason Lange in Washington and Leah Schnurr in New York; Editing by Neil Stempleman

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