Wednesday, April 26, 2006


A jump in demand for commercial aircraft pushed orders for big-ticket manufactured goods higher last month while sales of new homes shot up at the fastest pace in 13 years, reflecting a rebound from bad weather in February.

Both reports depicted an economy continuing to expand at a healthy pace, a view supported by a survey of business conditions across the country released yesterday by the Federal Reserve.

The Fed’s 12 regional banks used words such as “solid” and “steady” to describe the economy’s performance last month and early this month. The Fed did note that “higher energy prices were at the forefront of most districts’ mention of cost pressures,” and that was before crude oil soared to a record $75.17 per barrel Friday.

Some analysts said the strong growth plus rising inflation pressures will mean the central bank’s rate-setting Federal Open Market Committee (FOMC) will raise rates for a 16th time at its next meeting in May and will keep going after that.

“The U.S. economy is firing on all cylinders right now, and there is little to no slack left,” said Sherry Cooper, chief economist at Harris Bank. “This makes it increasingly unlikely that the Fed will pause after the May 10 FOMC meeting.”

The Commerce Department reported that sales of new single-family homes rose 13.8 percent last month to a seasonally adjusted annual sales rate of 1.213 million units. The increase represented a recovery from a 10.9 percent February sales plunge.

But the median price of homes sold last month dropped to $224,200, down 2.2 percent from the market prices of March 2005. It marked the first time home prices dropped over a 12-month period since December 2003.

Home prices last year were soaring as eager buyers bid more to get into a sizzling home market. However, analysts think sales, which set records for five straight years, will decline this year by about 10 percent under the impact of rising mortgage rates.

“With interest rates continuing to rise, all signs point to a further weakening in sales just down the road,” said Patrick Newport, an economist at forecasting firm Global Insight.

Rates on 30-year mortgages rose last week to 6.53 percent, the highest level in nearly four years, with economists forecasting that they could be about 7 percent by the end of this year.

Home sales were up in all areas of the country last month, led by a 35.7 percent surge in the West and followed by gains of 10.9 percent in the Midwest, 6.9 percent in the South and 4.7 percent in the Northeast.

The government also reported that orders to U.S. factories for big-ticket manufactured goods soared by 6.1 percent last month, the biggest gain in 10 months. Two-thirds of the increase reflected a 71.1 percent jump in demand for commercial aircraft.

The overall increase, which followed a 3.4 percent February advance, was more than three times the advance Wall Street had been expecting. Manufacturing is expected to remain strong in coming months as businesses restock lean inventories and boost spending to expand and modernize.

“Businesses remain confident in the economic outlook and are committing to significant capital investments,” said David Huether, the National Association of Manufacturers’ chief economist.

In contrast to the big surge in new home sales last month, sales of previously owned homes edged up a much smaller 0.3 percent, the National Association of Realtors reported Tuesday.

Both reports, however, showed that the number of unsold homes on the market at the end of the month rose to record levels, a development that was expected to depress price gains in coming months.

The number of new homes remaining on the market last month rose to a record 555,000, up 2.8 percent from February.

More on the Fed’s thinking may be known after Fed Chairman Ben S. Bernanke testifies on the economic outlook today before Congress’ Joint Economic Committee.

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