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Home Sales Down, E-Tailing Up

New-home sales plunged by 4.2 percent in January as higher mortgage rates cut into demand. Electronic retail sales of goods exceeded $5 billion at the end of 1999.

Americans purchased new single-family homes at a seasonally adjusted annual rate of 882,000, the lowest level since March 1999, the Commerce Department said Thursday. The drop was bigger than the 1.1 percent decline many analysts were forecasting. In December, new-home sales rose four percent.

In another report, Commerce said online retail sales totaled an unadjusted $5.3 billion in the fourth quarter but still accounted for only 0.6 percent of the $821.2 billion in total retail sales during that period.

In a bow to the growing importance of this segment of the economy, the government made its first formal stand-alone estimate of quarterly sales of goods and services over the Internet and other online systems. The government's monthly reports on retail sales nationwide include online sales but they aren't listed separately.

First-quarter electronic commerce sales will be released in May.

Like the monthly retail sales report, the online sales statistic is based on a wide range of businesses selling everything from clothing and books to cars and furniture. But the statistic does not include sales from online travel services, financial services and ticket sales for things like music concerts. Neither does the monthly retail report include these services.

Private analysts say that online sales remain a small portion of total retail sales. In 1998, online retail sales accounted for 0.5 percent of all sales and were projected to account for 1.2 percent for all of 1999.

This past holiday season was a huge success for Internet retailers, which enticed new shoppers with aggressive advertising, private analysts have noted.

With plentiful jobs, rising incomes and stock market gains, Americans have been in the mood to spend.

The Federal Reserve boosted interest rates four times since June by a full percentage point, making borrowing more expensive for consumers and businesses. The central bank bumped up rates in an effort to slow the red-hot economy and keep inflation from escalating.

Despite higher rates, the economy continues to roar ahead. Given that, most economists believe the Fed will raise rates again on March 21.

In another report, the number of Americans filing new claims for unemployment benefits rose by 6,000 to 275,000 last week. But that still left claims in a range suggesting that employers are having trouble finding qualified workers.

Economists are concerned that employers will attract workers with big increases in wages and benefits. While that's good for workers, economists worry those increased costs could drive up product prices and spark inflation.

The upswing in mortgage rates took their toll on new-home sales in January. The average rate on a 30-year fixed-rate mortgage was 8.21 percent in January, compared with 7.91 percent in Decembe.

New-home sales were down in all parts of the country except for the Northeast, where they rose.

Sales in the Midwest took the biggest plunge, falling 8.7 percent in January to a seasonally adjusted annual rate of 137,000 units. In the West, sales fell by 7 percent to a rate of 238,000 units and in the South they were down by 2.8 percent to a rate of 415,000. But in the Northeast, sales rose 5.7 percent to a rate of 93,000.

The median price of a new home - meaning half sold for more and half for less - fell to $154,400 in January, down 5.9 percent from December's price.

A report last week showed that higher mortgage rates took a bite out of existing-home sales, pushing them down by 10.7 percent in January, the National Association of Realtors said.

By Jeannine Aversa
©2000 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed

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