Home sales to factories signal second-half weakness

Sales of existing U.S. homes unexpectedly dropped and manufacturing in the Philadelphia region contracted for a third month, showing economic weakness is extending into the second half of the year.

Home purchases slid 5.4% in June to a 4.37 million annual rate, an eight-month low, figures from the National Association of Realtors showed today (July 19) in Washington.

The Federal Reserve Bank of Philadelphia’s general economic index was minus 12.9 in July after minus 16.6 the month before. Readings of less than zero signal contraction.

The figures underscore Fed Chairman Ben Bernanke’s concerns that growth may be too feeble to reduce unemployment stuck above 8% since February 2009. Other reports today showed consumer confidence weakened, claims for unemployment benefits rose and an index of leading economic indicators declined more than forecast.

“We’ll have very slow growth,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York and the best forecaster of U.S. economic indicators in the two years through May, according to data compiled by Bloomberg News. “The excess supply of homes will weigh on housing for quite some time. Manufacturing is starting to suffer a bit. The labor market remains pretty soggy.”

The median forecast of 76 economists surveyed by Bloomberg News called for a 4.62 million pace of existing home sales. Estimates ranged from 4.42 million to 4.75 million.

Slower job growth, stricter lending standards and competition from cheaper distressed properties may be impeding the market even with mortgage rates at all-time lows. The drop in home values since the last recession has also left many owners owing more than their property is worth, limiting their ability to relocate.

“Given that hiring has slowed down over the last few months, I don’t think it’s surprising we’re seeing sales soften,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Penn. “Buyers are hesitant because they didn’t want to buy a home and see it depreciate within a year.”

Existing-home sales, which are tabulated when a contract closes, have strengthened since reaching a low of 3.39 million at an annual rate in July 2010. In the buildup to the subprime lending collapse and recession, purchases reached a peak of 7.25 million in September 2005.

Economists forecast the Philadelphia manufacturing gauge would improve to minus 8, according to the median estimate in a Bloomberg survey. The region covers eastern Pennsylvania, southern New Jersey and Delaware.

Manufacturers are seeing slowing demand for exports as the European debt crisis and slowing growth in China and Brazil take a toll on overseas demand. At the same time, elevated unemployment is restraining consumer spending, while a drought in the Midwest threatens sales of farm equipment made by companies such as Deere & Co.

Economists monitor the Philadelphia factory report and other regional indexes for clues to the Institute for Supply Management’s national figures on manufacturing. The ISM will release its next report on Aug. 1. Manufacturing unexpectedly shrank in June for the first time in three years, the group said.

The Conference Board’s gauge of the outlook for the next three to six months decreased 0.3% after a revised 0.4% increase in May, the New York-based group said today. Economists projected the gauge would drop by 0.1%, according to the median estimate in a Bloomberg survey.

More Americans than forecast filed first-time claims for unemployment insurance payments last week, reflecting volatility induced by the annual auto-plant retooling period.

Applications for jobless benefits increased by 34,000 to 386,000 in the week ended July 14, Labor Department figures showed today. Economists forecast 365,000 claims, according to the median estimate in a Bloomberg survey. The volatility in the numbers was due to a change in the timing of annual automobile plant layoffs, a Labor Department official said as the data were released.