WASHINGTON (Reuters) - U.S. new home sales plunged to their lowest in more than 16 years in March and prices plummeted but jobs and factory data suggested slumping home values may not be hurting the economy as much as feared.
U.S. stocks rallied and Treasury bond prices fell on the news on Thursday, with investors betting this may encourage the Federal Reserve to only cut rates modestly at its meeting next week, and then go on hold, or even hold rates unchanged.
Slumping U.S. housing has chilled growth and sparked a global credit crunch, forcing the Federal Reserve to aggressively ease monetary policy in recent months, lowering its overnight benchmark 3 percentage points to 2.25 percent.
Thursday’s data showed that for new homes, at least, the market remained dire.
Single-family new home sales slumped 8.5 percent in March to a 526,000 annual rate, the weakest pace since October 1991, while the median sales prices versus a year ago dropped by the largest amount since 1970, the Commerce Department said.
“This does mean a lousy start for spring, that’s for sure,” said Christopher Low, chief economist at FTN Financial in New York. “The housing market is very weak in the beginning of the spring selling season,” he said.
March’s fall follows a downwardly revised 575,000 units in February. Economists polled by Reuters had forecast March sales to slow to a 580,000 annual pace from the previously reported 590,000 reading the month before.
The sharp decline in new home sales was in contrast to the more modest 2 percent drop in sales of previously owned homes in March reported on Tuesday.
“What you have is a divergence between existing homes, which seem to be bottoming, and the decline in new home sales which is accelerating. Which do you believe?” said Low.
Interest rate futures markets had fully priced another quarter percentage point Fed ease at the meeting on April 29-30. But these chances were reduced to show only about an 80 percent likelihood the central bank would move after Thursday’s data, which also showed initial jobless claims fell last week and durable goods orders exhibited some resilience in March.
Economists are watching for evidence that housing woe could drag the United States into a prolonged recession after weakness from bellwethers like coffee shop Starbucks hinted that consumers were foregoing even the simple luxuries of life. But other data signaled this case might not be so clear cut.
First-time jobless claims fell sharply last week and a dip in March durable goods orders was mostly due to a big drop in orders for transportation goods, led by motor vehicles.
“They sure don’t look like recession numbers to me,” said Michael Darda, chief economist at MKM Partners LLC in Greenwich, Connecticut, referring to the jobs data.
The number of U.S. workers filing initial claims for unemployment benefits fell by 33,000 last week to 342,000, the Labor Department said, compared with economists’ forecasts for 375,000 new claims.
The four-week moving average of new claims, a more reliable guide to underlying labor trends because it irons out weekly fluctuations, eased last week to 369,500 from 376,750.
“The 4-week moving average is still consistent with a slowdown, but the idea this is a second Great Depression or Japan circa-1995 is just utter hysteria and the numbers I think prove that,” said Darda.
Commerce Department data separately showed that new orders for long-lasting U.S. made goods unexpectedly fell 0.3 percent in March after transportation orders slumped, compared with economists’ forecasts for no change.
New orders excluding transportation rose 1.5 percent, while transportation equipment fell 4.6 percent, including a matching drop in motor vehicles and parts which was the steepest drop since last August.
“Durable goods (were) on the firm side with an improvement in orders once volatile transportation (is) stripped out,” Goldman Sachs economists wrote in a note to clients.
Nondefense capital goods orders excluding aircraft, a closely watched proxy for business spending, was unchanged as forecast and the previous month was revised up to show a 2.0 percent decline, from a 2.4 percent drop reported before.
But shipments of this so-called “core” measure of capital spending jumped by 1.2 percent, possibly hinting at stronger foreign demand for U.S. equipment, while inventories in this category increased by 1.0 percent.
“The net effect of all this was to push our estimate for first quarter GDP from down 0.1 percent to up 0.3 percent,” said Morgan Stanley economist David Greenlaw. “However, the softness in orders together with an inventory offset imply somewhat weaker economic performance in the second quarter.”