New-home sales hit new record, factories orders fall

Wednesday, Aug. 24, 2005 | 10 a.m.

WASHINGTON -- Sales of new homes shot up to a record high in July, while U.S. factories saw orders for costly manufactured goods drop by the largest amount in 18 months.

The mixed-message reports released today by the Commerce Department dramatized the vibrancy of the housing market and also the occasionally erratic pace of recovery from the 2001 recession in manufacturing.

Taken together, though, the reports still pointed to an economy that is moving ahead at a decent clip.

New-home sales in July soared to a seasonally adjusted annual rate of 1.41 million units. That represented a 6.5 percent increase from June's pace of 1.32 million units, which had been the previous record.

In the department's second report, new bookings to U.S. factories for "durable" goods -- big-ticket items expected to last at least three years -- declined by 4.9 percent in July from the previous month.

It marked the biggest drop since January 2004, when durable-goods orders fell by 5.7 percent.

On the housing front, the performance in July surprised economists who were predicting that sales of new homes would fall in July.

By region, sales rose in the West and Northeast, but fell in the Midwest and South.

The median price of a new-home in July was $203,800, down from $212,400 a year ago. The median price is where half sell for more and half sell for less.

While the booming housing market has been a consistent star performer for the economy in recent years, the manufacturing sector has sometimes had a bumpy ride.

The last time durable-goods orders fell was in March. Since then, manufacturers have been seeing bookings go up. In June, orders went up by 1.9 percent.

Manufacturers were hardest hit by the recession and they struggled mightily to get back to good health. Analysts believe the factory sector has shown much improvement and is in good shape, although manufacturing employment is still weak and there can be ups and downs in bookings from month to month.

The weakness seen in July hit a broad range of categories, including machinery, computers, communications equipment, electrical equipment and appliances, and airplanes. That more than offset stronger demand for automobiles and parts, and primary metals, a category that includes steel.

The decline in July was steeper than analysts were predicting. Before the release of the report, economists were forecasting a drop in durable-goods orders of around 1.2 percent.

Excluding orders for transportation equipment, which can swing widely from month to month, all other durable-goods orders fell by 3.2 percent in July. That compared with a 3.6 percent increase in June.

Shipments, a good barometer of current demand, dipped by 0.1 percent in July, after growing by 0.3 percent in June.

Factories, big energy users, have had to cope with surging energy bills. Oil prices climbed to an all-time closing high of $67.10 a barrel on Aug. 12.

Wanting to make sure high energy prices don't spark a broader outbreak of inflation, the Federal Reserve earlier this month boosted short-term interest rates for a 10th time since June 2004. Another rate increase is expected at the Fed's next meeting, Sept. 20.