Existing Home Sales Rise to 8-Year High in July

Properties As Existing Home Sales Figures Are Released
David Paul Morris/Bloomberg via Getty ImagesFor Sale signs displayed in front of houses in San Francisco.
By Lucia Mutikani

WASHINGTON -- Home resales rose to a near 8½-year high in July and factory activity in the Mid-Atlantic region picked up this month, fresh signs of steady economic growth that likely keeps the Federal Reserve on track to raise interest rates this year.

While other data Thursday showed a slight increase in the number of Americans filing new applications for unemployment benefits last week, the trend remained consistent with strong labor market momentum.

%VIRTUAL-pullquote-We continue to expect both economic growth and labor market activity to continue shifting higher...%"We continue to expect both economic growth and labor market activity to continue shifting higher, providing the justification for the Fed to begin the normalization in monetary policy in September," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The National Association of Realtors said existing home sales increased 2 percent to an annual rate of 5.59 million units last month, the highest pace since February 2007.

Demand for housing is being boosted by a strengthening labor market. But supply remains tight, pushing up home prices and sidelining first-time buyers, who are a key part of a strong housing market. The share of first-time buyers fell to a six-month low of 28 percent last month.

There were 2.24 million unsold previously owned homes on the market in July, down 4.7 percent from a year ago. That pushed the median home price to $234,000, up 5.6 percent from the year-ago period. Although higher prices could curb sales, they are raising equity for many owners and boosting household wealth.

They also may encourage builders to ramp up construction, further boosting the economy. Housing starts rose to a near eight-year high in July.

"The market needs more new homes to be built to continue the momentum, so the trade-up buyers can find their next home and provide inventory for those looking to enter the home buying market," said Bill Banfield, vice president at Quicken Loans in Detroit.

In a separate report, the Federal Reserve Bank of Philadelphia said its business activity index increased to 8.3 this month from a reading of 5.7 in July. A reading above zero indicates expansion in the region's manufacturing. While demand for manufactured goods remained weak, shipments rebounded strongly and employment in the region's factories improved.

National manufacturing activity has been stymied by a strong dollar, weak global demand and the impact of lower oil prices on the energy sector.

Strong Data Streak

The data added to solid June employment, retail sales and industrial production reports that have suggested the economy got off to a strong start in the third quarter.

Gross domestic product expanded at a 2.3 percent annual pace in the second quarter. A strengthening economy could encourage Fed officials, who are worried about persistently low inflation, to tighten monetary policy this year.

Minutes from the Fed's July 28-29 policy meeting published Wednesday underscored policymakers' concerns about tame price pressures, and economists believe that has raised the bar for a September "lift-off" in the central bank's short-term lending rate.

Futures markets trimmed bets Wednesday for a rate hike next month.

U.S. stocks fell again Thursday on worries about global growth, with the housing index dropping 1.49 percent. Prices for longer-dated U.S. Treasuries rallied, while the dollar slipped against a basket of currencies.

In a third report, the Labor Department said initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 277,000 for the week ended Aug. 15.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 5,500 to 271,500 last week.

It was the 21st straight week that the four-week average remained below the 300,000 threshold, which is usually associated with a strengthening labor market.

The claims data covered the week the government surveyed employers for the nonfarm payrolls portion of August's employment report. The four-week average of claims fell 7,000 between the July and August survey periods, suggesting another month of healthy job gains.

"These data show that companies are, for the most part, holding onto labor and reluctant to lay off workers," said John Ryding, chief economist at RDQ Economics in New York. "The data are for the August payroll survey week and suggest that the trend of solid job creation remains intact."

-Jason Lange contributed reporting.

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9 Numbers That'll Tell You How the Economy's Really Doing
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Existing Home Sales Rise to 8-Year High in July
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.
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