New US home sales slumped to the slowest pace on record in July and orders for costly durable goods were weak, heightening fears the economy was at risk of a new downturn. Wednesday's reports from the Commerce Department suggested growth could slow materially without government support and some economists saw the risk of a contraction in output in the third quarter.
-- New home sales rate of 276,000 slowest on record in July
-- Home prices weakest in over 6-1/2 years
"If you don't get a pick up in the next couple of months, it sure looks like it's possible the economy could contract in the third quarter," said Keith Hembre, chief economist at First American Funds in Minneapolis, Minnesota.
The unrelenting flood of negative economic data is also bad news for the Obama administration, months ahead of November congressional elections where Democrats risk losing a substantial number of seats because of voter fear and anger over high unemployment.
Some analysts see the possibility that Democrats will lose control of the US House of Representatives, which would complicate administration efforts to press ahead with reforms of healthcare coverage and other initiatives. So far, most economists are not predicting double-dip recession though they caution weak growth will persist into next year.
Single-family home sales plummeted 12.4 percent to a 276,000 unit annual rate, the lowest since the series started in 1963, the Commerce Department said. June's sales pace was revised down 315,000 units and markets had expected a 330,000 unit rate in July. In a second report, the department said new orders for long-lasting manufactured goods excluding transportation equipment posted their largest decline in 1-1/2 years in July while overall bookings rose far less than expected.
The economic recovery from the longest and deepest recession since the Great Depression is losing steam after a brisk fourth and first quarter, which had been fuelled by government stimulus and sturdy business investment. A Reuters/Ipsos poll on Tuesday found 72 percent of those asked said they were very concerned about joblessness, while Obama's approval rating, at 45 percent, was overtaken for the first time by a 52 percent disapproval rating.
Much of the government stimulus is already been spent and there is little political appetite to inject more money to support the faltering recovery amid a swelling budget deficit. The housing market, the main trigger of the recession, has suffered the most from the end of government support. The expiry in April of a popular tax credit for home buyers has depressed sales and building activity.
Data on Tuesday showed sales of previously owned homes dropped in July to their slowest pace in 15 years. The weak sales pace last month resulted in the supply of new homes available for sale spiking to 9.1 months' worth from 8.0 months' worth in June. The number of new homes on the market was unchanged at 210,000 units. The median sale price for a new home fell last month from June to $204,000, the lowest since December 2003.
A price index for new and existing single-family homes fell for the first time in four months in June, the Federal Housing Finance Agency said. The index, which is calculated from prices of homes financed with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac, fell 1.7 percent from a year earlier. Weak home sales are also the result of a 9.5 percent unemployment rate. Mortgage purchase applications rose only 0.6 percent in last week, even as 30-year loan rates fell to 4.55 percent, the Mortgage Bankers Association said in another report.
Even though luxury home-builder Toll Brothers Inc reported its first quarterly profit in three years, it said orders fell 16 percent. In the durable orders report, overall bookings rose 0.3 percent, far less than the 2.8 percent increase that markets had expected. Last month's moderate increase was the latest indication the sector that has been the main driver of the recovery from is losing some steam.
Even more concerning, non-defence capital goods orders excluding aircraft - a closely watched proxy for business spending - fell 8 percent last month after a 3.6 percent increase in June. "The strength of second-quarter GDP was business spending. It looks like businesses are pulling back from this commitment in a very big way in July. It's an indication of how sentiment is deteriorating," said Christopher Low, chief economist at FTN Financial in New York.
Durable goods inventories rose for a seventh straight and shipments, which go into the calculation of gross domestic product, last month rose 2.2 percent after June's 0.2 percent gain. Unfilled orders slipped 0.1 percent after rising for three straight months.
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