Economic Watch: Two Out of Three Reports Show Growth

Three important economic reports rolled in this week, with a split decision over sales of homes, while a third one measuring where the overall economy is headed shows continued growth and possibly greater economic strength.

New home sales in the United States during July fell to its lowest annual rate since October. The 13.4% decline translates into an annual rate of sales just below 400,000, according to the U.S. Commerce Department.

It’s believed the decline is coming from less demand, due to interest rates on homes hitting a two-year high, rather than tighter supplies.

The follows a separate report that sales of existing homes in the country increased 6.5% in July, according the National Association of Realtors. The performance was the best since November 2009 with the annual rate hitting 5.39 million homes. Sales were 17.2% higher than the same time a year ago.

Lawrence Yun, NAR chief economist, said changes in affordability are impacting the market. “Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines.”

Despite higher mortgage interest rates, Yun identified compensating factors that can sustain a continued recovery. “Although housing affordability conditions will become less attractive, jobs are being added to the economy, and mortgage underwriting standards should normalize over time from current stringent conditions as default rates fall.”

Finally, a measure of where the economy is headed over the next three to six months, turned in its best performance in three months during July, following no change the month before.

The Conference Board’s Index of Leading Economic increased 0.6%.

Ataman Ozyildirim, Economist at The Conference Board said, “Following moderate growth in the last few months, the U.S. LEI picked up in July, with widespread gains among its components. The pace of the LEI’s growth over the last six months has nearly doubled, pointing to a gradually strengthening expansion through the end of the year”

Ken Goldstein, Economist at The Conference Board said, “The improvement in the LEI, and pick up in the six-month growth rate, suggest better economic and job growth in the second half of 2013. However, the biggest uncertainties remain the pace of business spending and the impact of slower global growth on U.S. exports.”