June 26, 2007 / 2:02 PM / 12 years ago

New home sales, consumer confidence fall

WASHINGTON (Reuters) - U.S. new home sales fell in May while consumer confidence hit a 10-month low in June on worries about jobs and the business climate, adding to signs of sluggish economic growth.

A worker carries shingles for a new house on sale in Golden, Colorado, June 25, 2007. Sales of new U.S. homes fell 1.6 percent in May to a lower-than-expected level while prices climbed from April, according to a government report on Tuesday that continued to point to weakness in the housing sector. REUTERS/Rick Wilking

“These are numbers that are consistent with a slowing down in activity, a moderation on the consumption side,” said Steven Wieting, an economist with Citigroup Global Markets in New York.

Sales of new U.S. homes fell 1.6 percent last month to an annual rate of 915,000 units from a downwardly revised pace of 930,000 in April, the Commerce Department said on Tuesday. Analysts had been looking for May new home sales of 925,000.

While sales fell, prices rose. The median sales price of a new home climbed 1.5 percent in May to $236,100 from $232,700 in April. That marked a reversal from April, when prices took a big tumble but sales rose strongly.

However, adding to the gloomy picture for housing, a separate report released on Tuesday showed existing U.S. single-family home prices declined in April, extending a string of negative year-on-year decreases that started in January.

As woes deepened for the housing sector, the second-largest U.S. home builder, Lennar Corp. (LEN.N), posted a quarterly loss, forecast a loss for the current quarter, and warned the housing market could tumble further.

The drag the struggling housing market has created for the broader economy looks set to persist, analysts said.

“Housing’s contribution to (economic) growth will be negative in both the second quarter and the third quarter,” said Steven Wood, chief economist at Insight Economics in Danville, California.

U.S. stocks slipped for a third straight day as investors worried about potential fallout from the ailing subprime mortgage market. The blue chip Dow Jones industrial average closed down 14.39 points at 13,337.66.

Prices for U.S. government bonds were little changed, while the dollar fell against the Japanese yen.


While the U.S. economy appears to have gained strength after expanding at an anemic 0.6 percent pace in the first quarter, concerns remain the stalwart American consumer may stumble under the weight of high gasoline prices and hard-to-afford mortgages.

The Conference Board said its index of consumer sentiment fell to 103.9 in June, the weakest since August 2006, from an upwardly revised 108.5 in May. Economists polled by Reuters had been looking for a reading of 105.5.

“A perceived softening in present-day business and employment conditions are the major reasons behind this month’s pull-back in confidence,” said Lynn Franco, director of the Conference Board’s Consumer Research Center.

The business research group’s present situation index fell to 127.9 in June — its lowest level since November 2006 — from 136.1 in May. The expectations index slipped to 87.9 from 90.1 a month ago.

“Even though gasoline prices have fallen back from their peak, it seems that they have taken their toll on the consumer,” said Nigel Gault, chief U.S. economist at Global Insight in Lexington, Massachusetts.

“In addition, the labor market component of the Conference Board survey hints at softening in the job market,” he said.

While economists say shifts in consumer confidence do not always portend changes in spending, two reports on Tuesday showed chain store sales growth softened last week.

Redbook Research said chain store sales rose only 1.4 percent last week from a year earlier, slowing from 2 percent a week earlier, while the International Council of Shopping Centers and UBS Securities said sales rose 1.7 percent from a year ago, off from 1.9 percent in the prior week.

Additional reporting by Lynn Adler, Nick Carey, and Ilaina Jonas, Nick Olivari, Lucia Mutikani and Kristina Cooke

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