Weak Housing, Factory Data Hint at Modest 4Q Growth

Existing U.S. Home Sales Rise to Second-Highest Since 2007
Factory activity in the Midwest shrunk in November and contracts to buy previously owned U.S. homes rose marginally, the latest suggestions that economic growth will probably remain modest in the fourth quarter.

The raft of weak economic reports isn’t likely to stop the Federal Reserve from hiking interest rates next month provided job growth doesn’t slow significantly in November, economists say.

“It suggests that there is no obvious uplift for growth in the near-term,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

The Institute for Supply Management-Chicago said its business barometer fell 7.5 points to 48.7 in November as new orders tumbled, pushing the index back into contraction territory for the sixth time this year. A reading below 50 indicates contraction in the Midwest manufacturing sector.

New orders plunged 15.3 points to 44.1, the lowest reading since March. Production also fell sharply, but remained just above the 50 level. The survey, however, likely exaggerates the weakness in the factory sector.

Data on business capital spending plans and factory output have suggested that manufacturing’s decline has bottomed.

That was also supported by a separate report on Monday showing the Dallas Federal Reserve’s manufacturing index rose 7.8 points to -4.9 in November.

A report Tuesday from the Institute for Supply Management could shed more light on the health of the nation’s factories.

Housing Softening

Manufacturing, which accounts for 12 percent of the U.S. economy, has been slammed by a strong dollar and spending cuts by energy firms.

In a third report on Monday, the National Association of Realtors said its pending home sales index rose 0.2 percent in October. While the increase ended two straight months of declines, it was far below economists’ expectations for a 1 percent rebound.

U.S. financial markets were little moved by the data.

We saw resilience in existing home sales in the third quarter, but pending home sales … suggest a slowing in existing home sales ahead.

The pending home sales and factory reports added to tepid consumer spending data in suggesting that the economy remained in moderate growth mode early in the fourth quarter. The economy grew at a 2.1 percent annual pace in the third quarter.

Pending home contracts become sales after a month or two, and last month’s small gain implied home resales will probably remain weak after falling 3.4 percent in October.

Also coming on the heels of weak housing starts in October and a drop in homebuilder confidence in November, the report suggested a moderation in overall housing activity.

Home sales are being constrained by tight inventories, which are pushing up prices. Sales activity has also weakened in areas heavily dependent on oil-related jobs.

“We saw resilience in existing home sales in the third quarter, but pending home sales … suggest a slowing in existing home sales ahead,” said Derek Lindsey, an analyst at BNP Paribas in New York. “Additionally, the flat trend in mortgage applications suggests little pickup ahead in home sales activity more generally.”

Pending home sales are up 3.9 percent from a year ago. In October, contracts rose 4.5 percent in the Northeast, which the Realtors group said hasn’t experienced much of the drastic price appreciation and supply constraints afflicting other parts of the country.

Contracts fell in both the South and the Midwest, where low inventory continues to drive up prices.

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