WASHINGTON -- Contracts to buy previously owned U.S. homes hit a 10-month low in October, but a strong rebound in services sector activity early this month suggested some resilience in the economy as the year winds down.
It was the fifth straight month of declines in contracts and suggested home resales could remain on the back foot for the rest of this year. These contracts become sales after a month or two. Home resales fell in October for a second straight month.
"The data suggest sluggish home sales going into the end of the year and that the tightening of financial conditions this summer did have a negative impact," said Yelena Shulyatyeva, economist at BNP Paribas in New York.
Economists, who had expected pending home sales to rise 1.3 percent in October, said the weak home sales trajectory could see the Federal Reserve sticking to its $85 billion monthly bond buying program at least until early next year.
The U.S. central bank has targeted housing as a channel to boost growth and speed up job creation.
According to NAR, a survey of realtors found 17 percent of respondents reported delays in signing contracts because they had to wait for the Internal Revenue Service to verify income before the mortgage could be approved.
The group expected a bounce back in contracts, but it cautioned that lack of inventory remained a constraint.
"Early data for November look a little better, with separate data on mortgage purchase application volumes perking up in the middle of the month from a very low level," said Daniel Silver, an economist at JPMorgan in New York.
"The weekly purchase application data are very volatile, but it is possible that this signals activity picking up to some degree very recently or at least flattening out." Home sales have been muted by a rise in mortgage rates. Though housing is cooling, the economy appears to have retained some of the upward momentum from the third quarter.
In a separate report, %VIRTUAL-article-sponsoredlinks%financial data firm Markit said its preliminary Purchasing Managers Index for the services sector rose to 57.1 this month from a record low 49.6 in October.
This is the first month that Markit is publishing data on the services industries, which it has been compiling since October 2009. Readings above 50 signal expansion in the services industries.
The services sector survey adds to data such as retail sales and nonfarm payrolls that have painted a fairly upbeat picture of the economy early in the fourth quarter.
Economists expect a slowdown in gross domestic product growth this quarter as businesses cut back on inventories after rapidly accumulating stocks in the July-September quarter.
"With other data showing the recovery in the labor market still on track, and confidence moving up again, we expect home sales to start trending up again in coming months," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.
"For now, though, the weaker data are a reason for the Fed to remain cautious about tapering."
Pending home sales were up in the Northeast and Midwest. They dropped 4.1 percent in the West.
9 Numbers That'll Tell You How the Economy's Really Doing
Pending Home Sales Hit 10-month Low in October
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.