The U.S. economy is showing more signs of recovery, but new data on housing and household income underscored concerns that the economy could lose momentum next year as the impact of government stimulus fades.
Sales of newly built homes fell 11.3% in November to a seven-month low, the Commerce Department reported, as the government's tax credit for first-time buyers was originally set to expire. "The housing rebound has so far been largely supported by government programs, raising questions of sustainability as these programs come to an end next year," said BNP Paribas economist Anna Piretti.
The department also said U.S. personal income rose 0.4% last month, before inflation adjustment, boosted by government payments such as unemployment benefits -- though wage and salary payments to workers also showed an encouraging increase.
"Growth may slow from its current pace," said Peter Newland, an economist with Barclays Capital, "but even as the government's fiscal boost fades, wages and salaries can provide underlying support for consumer spending." He added that it is unlikely the U.S. will get anything akin to a double-dip or another recession.
Indeed, inflation-adjusted consumer spending rose in November for the fifth time in the past six months -- the exception being September, after the federal "cash-for-clunkers" automobile trade-in program expired. A separate Reuters/University of Michigan consumer sentiment index, meanwhile, jumped 5.1 points in December to 72.5, as sentiment about both current conditions and the future rose.
The decline in new-home sales to a seasonally adjusted annual rate of 355,000 units followed a 7.4% increase the month before in the volatile measure, the Commerce Department said. Sales of newly built homes make up less than 15% of total home sales. Sales of previously occupied homes rose 7.4% in November to an annual rate of 6.54 million, the highest level in nearly three years, the National Association of Realtors said earlier this week.
Home sales earlier this year were boosted by a tax credit of as much as $8,000 for first-time home buyers that had been set to expire Nov. 30, prompting some people to rush to complete their deals in anticipation of its expiration. Congress did, in the end, extend and expand the credit. But expectations that it would end boosted the existing-home sales measure for November, which reflects closing of deals, many made in September and October. The volume of existing-home sales was boosted by bargain-priced "distressed" sales such as foreclosures, which made up a third of all purchases last month.
In contrast, the new-home sales data largely reflect agreements to purchase homes, not completed deals, and thus reflect later decisions by home buyers. Data for earlier months reflected the rush to take advantage of the tax credit.
In an encouraging sign, the number of unsold newly built homes for sale declined for the 31st month in a row, and is now down to seven months' supply, at the current sales pace. That was the lowest level in nearly three years and a marked improvement from the 12.4 months' supply in January. There are fewer unsold newly built homes on the market today than at any time since May 1971, according to IHS Global Insight.
The Commerce Department's new-home sales data are particularly volatile because they are drawn from a small sample. The government said it is 90% confident that actual sales were somewhere between down 0.3% and up 11.3% in November, an enormous range. As a result, the department says it takes four months to establish a trend in this measure. "A four-month moving average shows sales flattening out, after rising somewhat earlier this year," said IHS Global Insight.
Meanwhile, consumer spending gained 0.5% in November from the prior month, a rise of 0.2% after adjusting for inflation. That puts spending on track to grow at an inflation adjusted annual rate of 1.5% in the current fourth quarter after 2.8% growth in the third quarter, according to Goldman Sachs economists.
The personal-saving rate, which measures how much of after-tax income was unspent, held steady at 4.7% last month, the same as October, compared with near-zero levels during the boom. A price gauge closely watched by the Federal Reserve was unchanged, showing a 1.4% increase in prices last month compared with the prior year, roughly within the range the Fed considers to show price stability.
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Printed in The Wall Street Journal, page A4