U.S. new home sales at seven-month low; manufacturing stabilizes

[July 25, 2015]   By Lucia Mutikani
 
 WASHINGTON (Reuters) - New U.S. single-family home sales fell in June to a seven-month low and May's sales were revised sharply down, but the data on Friday did little to change the belief that the housing market recovery was shifting into higher gear.

Sales of new homes account for only 8.1 percent of the housing market and tend to be volatile on a month-to-month basis. June's surprise decline and the May revisions also are at odds with other housing data that have shown strong momentum.

"We should not get too worried about the signal from the new home sales data at this point," said Daniel Silver, an economist at JPMorgan in New York.

New home sales dropped 6.8 percent to a seasonally adjusted annual rate of 482,000 units, the lowest level since last November, the Commerce Department said. May's sales pace was cut to 517,000 units from the previously reported 546,000 units.

Despite two straight months of declines in new home sales, the housing market recovery remains intact. New home sales were up 18.1 percent compared to June of last year.

Housing is being supported by a tightening labor market, which has unleashed demand from young adults. Government efforts to ease lending conditions for first-time buyers through mortgage finance firms Fannie Mae and Freddie Mac also have helped.

A report on Wednesday showed home resales jumped to a more than eight-year high in June. Data last week showed building permits near an eight-year peak in June and housing starts increasing solidly.

Stocks on Wall Street were trading lower on Friday, while prices for U.S. government debt rose marginally. The dollar firmed against a basket of currencies.

'ON AN UPSWING'

"We see no reason to change our view that housing activity is on an upswing," said John Ryding, chief economist at RDQ Economics in New York.The strong housing momentum suggests the economy remained on solid ground despite a surprise drop in retail sales last month and a struggling manufacturing sector, and should be able to absorb an interest rate hike expected later this year.

The U.S. economy is on better footing than its global peers. Data on Friday showed Chinese manufacturing contracted in July to a 15-month low. Business activity in the euro zone slowed this month, with the weakness blamed on the impact of Greece's debt crisis.

U.S. manufacturing, which has been hobbled by a strong dollar and spending cuts by energy companies, showed signs of stabilizing in July.

In a separate report, financial data firm Markit said its preliminary U.S. Manufacturing Purchasing Managers' Index rose to 53.8 this month from a 20-month low of 53.6 in June. A reading above 50 indicates expansion in the factory sector.

Despite the gain, manufacturers said investment spending cuts in the energy sector continued to weigh on sales.

There was a modest rise in new work from abroad, which

ended three straight months of falling export sales across the manufacturing sector. Still, manufacturers were cautious about hiring.

"The Markit survey confirms that U.S. manufacturing is likely to see only a sluggish pace of growth in the third quarter," said Jesse Hurwitz, an economist at Barclays in New York.

Economists expect that housing will partly offset manufacturing's drag on the economy this year.

(Reporting by Lucia Mutikani; Additional reporting by Caroline Valetkevitch in New York.; Editing by Paul Simao)

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