The week ahead: Home sales likely fell, durable goods rose

U.S. home sales probably fell in February, while orders for long-lasting goods climbed, a reminder of an economic recovery reliant on manufacturing as housing struggles, economists said before reports this week.

Combined purchases of new and existing homes fell 4.3 percent to a 5.4 million annual pace, according to the median forecast of economists surveyed by Bloomberg News. Durable-goods bookings increased 1.2 percent last month, other data may show.

The prospect of more home foreclosures may drive prices down further, limiting new construction and straining household balance sheets. Factories have picked up the slack as exports grow and companies step up equipment purchases, underscoring the Federal Reserve's view of an economy on a “firmer footing.”

“Manufacturing is making quite a lot of difference; it has been the real strength of this recovery,” said Rob Carnell, chief international economist at ING Bank NV in London. “Housing is not contributing at all to the U.S. recovery. It's bumping along the bottom.”

Sales of existing homes fell 4.7 percent to a 5.11 million annual pace, economists surveyed by Bloomberg forecast the National Association of Realtors will report tomorrow. Commerce Department figures two days later may show demand for new homes rose 2.1 percent to a 290,000 pace. The gain would follow a 13 percent plunge that may have been partly due to bad weather. Purchases reached an all-time low 274,000 pace in August.

Orders for durable goods rose in February after a 3.2 percent jump the prior period, economists forecast the Commerce Department will report March 24. Capital goods orders probably climbed 3.7 percent, the third gain in four months, according to the median projection.

Auto Sales

The U.S. auto industry is enjoying six straight months of increasing sales. U.S. purchases at General Motors, Toyota Motor Corp. and Ford Motor Co. in February exceeded analysts' estimates as industrywide sales rose to a 13.38 million annual rate, the fastest in 18 months.

“We still see good signs of progress despite some of the challenges that do remain in the U.S. market,” Donald Johnson, vice president for GM's North America sales, said on a teleconference on March 1. “We're going to see this slow but steady growth throughout the year.”

The business spending that helped lead the economy out of recession in mid-2009 may accelerate this year, helped in part by President Barack Obama's December compromise with congressional Republicans on taxes. Companies will be able to depreciate 100 percent of investments in capital equipment this year and 50 percent in 2011.

Increased Exports

Demand from fast-growing countries like China and Brazil is spurring U.S. exports of machinery and consumer goods. American exports in January rose to the highest level on record.

One potential hurdle is the March 11 earthquake and tsunami in Japan, which prompted a nuclear crisis and caused electrical outages. U.S. companies are still trying to gauge the effects of the tragedy on international supply chains.

Ford Motor Co. and Boeing Co. are maintaining global production while waiting for partners in Japan to determine how long it will take to get back to full production schedules.

“We're OK for a few weeks, and I can't tell you beyond that,” Boeing Commercial Airplanes President Jim Albaugh said in an interview in Scottsdale, Arizona.

Fed policy makers noted the bifurcation of the recovery in their March 2 Beige Book survey of regional economies through mid-January.

Fed on Housing

Eleven of 12 Fed districts reported “that manufacturing activity improved,” while residential sales and construction “remained at low levels across all districts.”

Homebuilder shares have underperformed the broader stock market since the middle of last year. The Standard & Poor's Supercomposite Homebuilder index of 12 builders has declined 9.7 percent in the 12 months ended March 18, compared with a 9.7 percent increase for the S&P 500 Index. The S&P Machinery Supercomposite Index is up 40 percent during the same period.

The foreclosure inventory rose to a record 2.2 million in January, with another 4.7 million households non-current on their mortgages or headed for foreclosure, Lender Processing Services Inc., based in Jacksonville, Florida, said in a February report on its website.

The S&P/Case-Shiller index of home values in 20 cities fell 2.4 percent in December from the same month in 2009, the biggest 12-month decrease in a year. Home prices were 31 percent below their July 2006 peak and approaching the 33 percent trough reached in April 2009.

Americans' attitudes are also souring as drivers pay more at the gas pump. The Reuters/University of Michigan final consumer confidence index for this month, due March 25, may fall to five-month low of 68, reflecting rising gasoline prices, according to economists surveyed, from 77.5 in February.