May Was Good For Homes, Lousy For Durables

By John S. McClenahen The housing sector of the U.S. economy, which had been cooling a bit in recent months, got hot again in May. Existing home sales were at a seasonally adjusted annual rate of 5.92 million units, up 1.2% from April's level of 5.85 million units and the third highest monthly pace on record, says the National Association of Realtors, Chicago. Meanwhile, sales of new one-family homes last month were at a seasonally adjusted annual rate of 1.157 million units, 12.5% higher than the revised April rate of 1.028 million units, says a joint report from the U.S. Department of Commerce and the U.S. Department of Housing and Urban Development. Both existing and new home sales may do even better this month. "First, the full effect of lower [mortgage] rates has yet to show up in existing sales, which are counted at closing rather than at the contract stage [that is] used to gauge new home sales. Second, mortgage applications to purchase new homes are running higher in June than [they ran] in May," says Maury Harris, chief U.S. economist at UBS Investment Research, New York. In contrast, neither consumers nor companies were making many large purchases last month. New orders for manufactured durable goods, those that are designed to last more than three years, decreased 0.3% in May to $168.3 billion, says the U.S. Commerce Department. Economists generally figured on a 1% increase. May's figure is the lowest since June 2002 and followed April's 2.4% decline in new orders for durables. And that's going to make it tougher for the U.S. economy to post something above 4% in GDP growth during the second half of 2003. "It seems hardly likely that companies will go on a hiring spree with order books still being squeezed, so as we have seen during the prior rounds of tax relief, look for the consumer to fade once the 'tax-check-effect' wears out in the absence of renewed employment growth," warns David A. Rosenberg, chief North American economist at Merrill Lynch & Co., New York.

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