May 16, 2021

Home Resales and Midwest Factory Activity Increase

WASHINGTON (Reuters) — Contracts for home resales hit a two-and-a-half-year high in November and factory activity in the Midwest expanded this month, suggesting some economic strength despite the threat of tighter fiscal policy.

The National Association of Realtors said on Friday that its pending home sales index, based on contracts signed last month, increased 1.7 percent to 106.4, the highest level since April 2010, when the homebuyer tax credit expired.

November was the third consecutive month of gains for signed contracts, which become sales after a month or two. There was a 5 percent rise in October.

A separate report showed that the Institute for Supply Management’s Chicago business barometer rose to 51.6 in December, from 50.4 in November. A reading above 50 indicates expansion in the regional economy. It was the second consecutive month of growth and was driven by a rebound in new orders.

The data suggested that some of the growth momentum from the third quarter carried into the final three months of 2012, even as businesses and households braced for sharp cuts in government spending and higher taxes in the new year.

Data in the fourth quarter, including consumer spending, housing, employment and various manufacturing indicators, have been fairly upbeat so far.

“We don’t see much evidence that the economy was slowing as we headed into the end of the year, but everything could change on Jan. 1,” said John Ryding, chief economist at RDQ Economics in New York.

There are fears that budget talks in Washington will fail to prevent $600 billion in government spending cuts and higher taxes, which could tip the economy back into recession.

“There is nothing here to suggest that the economy has enough momentum to withstand the shock if we go over the fiscal cliff with no quick return,” Mr. Ryding said. “The good news right now is it looks like we could have the mid-2s kind” of G.D.P. growth in the fourth quarter.

The economy grew at a 3.1 percent annual rate in the third quarter. The latest Reuters survey of economists put fourth-quarter G.D.P. growth at a 1.2 percent rate, with the decline a result mostly of Hurricane Sandy, which struck the East Coast in late October, and of cutbacks in business spending.

Though the employment gauge in the I.S.M.-Chicago survey fell to a three-year low in December, economists expect a rebound given the strength in new orders.

“The drop in employment reflects the weakness in new orders in November and, to a lesser degree, the fiscal cliff,” said Eric Green, an analyst at TD Securities in New York. “With the bounce-back in new orders, employment will also bounce back.”

The pending home sales report indicated a strengthening in the housing market recovery. Contracts were up 9.8 percent in the 12 months through November.

The housing market has turned a corner after the collapse that dragged the economy through its worst recession since the Great Depression.

Home sales and prices are rising, encouraging builders to pursue new construction projects. Home resale contracts were up in three of the country’s four regions, and steady in the South.

“The housing revival seems to be happening in a way that puts some positive feedback loop, a virtuous cycle, into the economy,” said Jerry Webman, chief economist at OppenheimerFunds.

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