US consumer sentiment rebounded in July from a 28-year low and business investment rose unexpectedly last month, according to data on Friday that showed rare signs of resilience for the US economy. Data from the struggling housing market also contributed to the less gloomy picture.
New home sales in June were not as weak as expected, though few doubt it will take time for housing to recover from its worst slump since the Great Depression. The Reuters/University of Michigan Surveys of Consumers said its final index of confidence rose to 61.2 in July from 56.4 in June. The June reading was the lowest since 51.7 in May 1980, which was also the weakest reading ever. The index dates back to 1952, though the survey has been conducted since 1946.
Analysts saw plenty of reasons to be sceptical of a long-lasting recovery in sentiment, seeing much of the improvement linked to government economic stimulus efforts and falling energy prices - both of which may be temporary.
"It's too early to say that we've turned the corner because the tax rebates are temporary," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri. "We are getting some lower energy prices but we're heading into the hurricane season so there's some risk that energy prices could rise again if there's a major hurricane."
On Wall Street, stocks added to their earlier gains after the stronger-than-expected consumer sentiment and housing data, while the dollar rose against the euro and yen. Government bonds, which perform better during times of economic weakness, extended their losses. Sales of newly constructed US single-family homes fell 0.6 percent in June to an annual pace of 530,000 annual pace. Economists polled by Reuters expected sales to slow to 500,000 from a previously reported 512,000 in May.
Earlier, mortgage finance giant Freddie Mac reporting its retained mortgage portfolio jumped by more than a 33 percent annual rate in June to about $792 billion. The pace at which Freddie Mac, and its larger counterpart Fannie Mae, expand their mortgage purchases is seen as critical at a time when the government is relying heavily on the two companies to stabilise the housing market.
Investor concern has centred on whether Freddie Mac and Fannie Mae have sufficient capital to keep buying mortgages at a robust clip as losses mount from rising loan delinquencies. The US Senate voted on Friday to limit debate on a bill aimed at shoring up both the housing market and mortgage finance companies Fannie Mae and Freddie Mac, paving the way for a final vote expected on Saturday.
Earlier this week, the White House lifted a threat to veto the measure, which has already passed the US House of Representatives. The bill includes provisions for the Treasury Department to offer Fannie and Freddie a bigger line of credit and buy stakes in the companies, if needed.
Data earlier in the day shed light on the depressed state of the housing market, with US home foreclosure filings up 14 percent in the second quarter, according to real estate data firm RealtyTrac. Meanwhile, new orders for long-lasting US manufactured goods rose unexpectedly in June on a surge in defence orders, while a gauge of business investment was also higher than forecast, a government report showed.
Durable goods orders rose 0.8 percent in June, after a revised 0.1 percent gain in May. Non-defence capital goods excluding aircraft, viewed as a barometer of business spending, jumped 1.4 percent after a revised 0.1 percent decline in May. "The overall pattern of business investment in the US is holding up pretty well," said Shaun Osborne, chief currency strategist at TD Securities in Toronto.
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