Homes Sales, Durable Goods Up

New-home sales shot up 8.1 percent in May, the biggest advance in six months, as low mortgage rates motivated buyers.

Another government report showed that orders for costly manufactured goods rose solidly in May, boosted by demand for computers and other capital goods, suggesting a modest pickup in business spending.

The larger-than-expected increase in home sales pushed up sales of new single-family homes to a seasonally adjusted annual rate of 1.03 million, a record monthly level, the Commerce Department reported Wednesday.

May was the first time new home sales sold at an annual pace greater than 1 million units and marked the biggest jump since November 2001. The previous record clip was 979,000 in December 2001.

The housing sector has been robust throughout the recession, boosted by low mortgage rates and rising incomes. The market is also seen as an attractive investment alternative to the stock market, reports CBS MarketWatch.

The advance in durable-goods orders — items expected to last at last three years — came after a 0.4 percent increase in April.

Unlike manufacturing, the housing market was one of the economy's few bright spots during the slump, in large part because of low mortgage rates. Low rates are continuing to keep the housing sector healthy.

Economists were predicting new-homes sales in May would rise by 0.5 percent to a rate of 920-921,000.

On Tuesday, the National Association of Realtors reported that sales of previously owned homes dipped by 0.3 percent in May, but still racked up the fourth-highest monthly level on record: a rate of 5.75 million units.

In May, the average rate on a 30-year fixed-rate mortgages was 6.81 percent, down from 6.99 percent in April and well below the 7.15 percent rate in May 2001, according to Freddie Mac, the mortgage company. Last week, rates on 30-year mortgages fell to 6.63 percent, the lowest in five months, Freddie Mac reported.

By region, sales of new homes in May jumped 26.4 percent in the Northeast to a seasonally adjusted annual rate of 67,000. In the South, sales rose 10.6 percent to a rate of 482,000, and in the West, they went up 4.3 percent to a rate of 289,000. Sales in the Midwest increased 2.7 percent to a rate of 190,000.

New-home sales went up by 3.9 percent in April, according to revised figures. That was considerably stronger than the 1 percent rise previously reported.

In the manufacturing report, the 0.6 percent increase in new orders to factories in May was the largest since a 1.7 percent advance in February. It marked the fifth increase in the last six months.

The latest snapshot of manufacturing activity clearly shows an economic sector on the mend after being mired in a long slump during which hundreds of thousands of jobs were cut as production was throttled back.

"In general, our view is that the data is good news. Capital shipments were healthy, as were orders," said Michael Englund, chief economist at S&P MMS. "We need a turn in business investment."

"It's a good report, not excellent. It's indicating the inventory cycle is in a recovery phase and the manufacturing sector of the economy is in a healing process," said John Herrmann, chief U.S. economist at IDEAglobal.

"The pace of layoffs has been down dramatically over the last several months, so manufacturing is set to go."

Demand for non-defense capital goods, an indication of business spending, excluding volatile aircraft orders, rose 0.2 percent, a sign of a modest recovery. Shipments in the same category were up 1.4 percent.

But Wednesday's report and other manufacturing data also suggest the factory sector isn't going gangbusters. That partly reflects the fact that businesses, worried about the staying power of the national economic recovery, are reluctant to make big commitments, including investments in new plants and equipment, a key ingredient for a sustained rebound.

Federal Reserve Chairman Alan Greenspan, who was in the middle of chairing the Fed's two-day interest rate policy-setting meeting, has highlighted business spending as the key to a strong recovery. But analysts said the report was not strong enough to alter expectations that the Fed would keep interest rates unchanged on Wednesday.

"While Greenspan probably pays closer attention to durable goods than the market does, there was nothing in this report to alter the outlook greatly," said Lou Crandall, chief economist at Wrightson Associates in New York.

Shipments, a good barometer of current demand, were flat in May, following a 3.4 percent jump in April.

Factories reported that new orders for fabricated metal products rose 2.4 percent in May, on top of a 1 percent rise the previous month.

Orders for primary metals — including steel, went up 0.9 percent, down from a strong 6.3 percent increase.

For computers and electronic products, orders rose 1 percent in May, compared with a 2.9 percent increase the month before.

There were some weak spots. Orders for cars fell 2 percent in May, following a 12.1 percent jump. Orders for electrical equipment and household appliances declined by 2.1 percent, down from a 10.3 percent advance. And, orders for machinery dipped 0.4 percent, following a 4.5 percent increase.

The financial markets largely ignored the data, focusing instead on the multibillion dollar accounting scandal announced on Tuesday by WorldCom Inc., which weakened the dollar and caused stocks to tumble around the world.