U.S. housing data, sturdy jobs market buoy growth outlook

By Reuters

May 28, 2015 06:33 PM EDT

Contracts to buy previously owned U.S. homes rose for a fourth straight month in April to a nine-year high, buoying the outlook for the housing market and the overall economy.

While other data on Thursday showed an unexpected increase in new applications for unemployment benefits, filings remained at levels consistent with a tightening labor market.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed last month, increased 3.4 percent to 112.4, the highest level since May 2006.

Generally contracts become sales after a month or two, and last month's increase pointed to a pick-up in home resales after they lost momentum in April. Economists had forecast pending home sales rising only 0.9 percent last month.

"Today's report suggests we may see continued strength in resales in the months ahead. However, the current low inventory levels, which are placing upward pressure on home prices, remain a bit of a downside risk," said Derek Lindsey, an economist at BNP Paribas in New York.

The jobless claims and housing data joined upbeat reports on consumer confidence and business spending plans that have hinted the economy might finally be gaining steam as some drags on growth in the first quarter either fade or ease.

April data on retail sales and industrial production had pointed to modest growth early in the second quarter.

Prices for U.S. Treasury debt slipped, while the dollar was little changed against a basket of currencies. U.S. stocks were trading lower as traders worried Greece could default on its debt repayments.

Firming housing and the tightening jobs market will likely keep the Federal Reserve on track to raise interest rates this year.


Housing is being supported by the strengthening labor market, which is encouraging young adults to move out of their parents' basements and setting up their own households.

While tight inventories are pushing up house prices and constraining activity, there is hope higher home values will encourage more homeowners to put their houses on the market and builders to break more ground on new projects.

An accelerating housing market would pick up some of the slack from weak business investment, which has been undermined by deep spending cuts in the energy sector in response to a sharp drop in oil prices.

In a separate report, the Labor Department said initial claims for state unemployment benefits rose 7,000 to a seasonally adjusted 282,000 for the week ended May 23.

While that confounded economists' expectations for a drop to 270,000, claims stayed below 300,000, a threshold associated with a firming jobs market, for a 12th straight week, an unusually long stretch given a sluggish economic backdrop.

"The data have reinforced our view that the underlying trend in growth has not weakened significantly and that employment growth remains more than strong enough to keep unemployment trending down," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Outside the energy sector, which has suffered thousands of job losses because of the lower oil prices, layoffs remain subdued even as economic growth struggles to rebound strongly after slumping at the start of the year.

The claims report showed the number of people still receiving benefits after an initial week of aid rose 11,000 to 2.22 million in the week ended May 16.

The four-week moving average of the so-called continuing claims, which irons out week-to-week volatility, fell to its lowest level since November 2000.

Continuing claims covered the period during which the government surveyed households for May's unemployment rate. The four-week average declined 70,250 between the April and May survey periods, suggesting a dip in the jobless rate from a near seven-year low of 5.4 percent last month.

"The continuing claims data continue to point to slack in the labor market diminishing," said John Ryding, chief economist at RDQ Economics in New York.

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