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Homes sales, durable goods orders drive economy in March

WASHINGTON — Sales of new homes took the biggest monthly jump in 47 years in March, while orders for most large manufactured products rose by the largest amount since the recession started.

The two reports were a sign that the recovery is picking up speed, and some economists are raising their estimates for U.S. economic growth this year.

"The recovery has been proceeding at a more rapid pace than we thought," said Zach Pandl, economist with Nomura Securities in New York.

Factories are benefiting from a sharp increase in orders from U.S. and foreign businesses. But the housing market's fuel is coming from a less sustainable source: government subsidies. Some analysts predict demand for homes will fall again over the summer, preventing the beleaguered sector from adding much to the economic recovery.

The government is offering an $8,000 tax credit for first-time buyers and $6,500 for current homeowners who buy and move into another property. To qualify, buyers must have a signed contract complete by the end of April and need to finish their transaction by the end of June.

Major homebuilders like Lennar Corp., Hovnanian Enterprises Inc. and MDC Holdings Inc. are aggressively promoting countdowns to April 30 or "last chance" sales on their websites.

MDC Holdings, which builds communities in 10 states under the name Richmond American Homes, is also offering to pay closing costs for buyers. But CEO Larry Mizel warned investors Friday, "we remain cautious due to the impending expiration of the federal homebuyer tax credit and depressed overall economic conditions."

"I expect we'll see a very sharp drop back," possibly to new record lows, said Paul Ashworth, senior U.S economist with Capital Economics

Elsewhere, other businesses are accelerating spending. That's critical to nation's recovery because consumers aren't spending as freely as in previous rebounds.

New orders for durable goods — those expected to last at least three years — fell by 1.3 percent, the government said. But excluding demand for aircraft and other transportation goods, orders surged 2.8 percent, much more than analysts had projected.

"Firms are finally putting their money where their mouths are and betting on a rebound," Diane Swonk, chief economist at Mesirow Financial, wrote in a note to clients.

Orders for capital goods such as machinery and computers — a key measure of business investment — jumped by 4 percent, more than many economists forecast and the second straight increase.

Companies are also increasing their inventories, the report Friday showed, though at a modest pace. Rising inventories can be a sign of confidence in future sales. Stockpiles of durable goods rose 0.2 percent in March, the department said, the third straight monthly gain.

Home sales, by the numbers

27 percent: The new home sales rise in March, bouncing off February's record low, said the Commerce Department.

411,000: The seasonally adjusted annual pace of sales, the strongest month since last July.

44 percent: New home sales growth in the South, Rates elsewhere were: 36 percent in the Northeast; 6 percent in the West; and 3 percent in the Midwest.

$214,000: The median sales price, up more than 4 percent from a year earlier but down more than 3 percent from February.

70 percent: The amount new home sales are down from their peak in July 2005

1.3 percent: The drop in new orders for durable goods. But, excluding demand for aircraft and other transportation goods, orders surged 2.8 percent, way ahead of predictions.

Homes sales, durable goods orders drive economy in March 04/23/10 [Last modified: Friday, April 23, 2010 10:52pm]
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