Report suggests brakes are on Home sales decline dims enthusiasm over GDP revision

THE BALTIMORE SUN

WASHINGTON -- Sales of new single-family homes in the United States fell in April to the lowest level in six months, taking some of the luster off another government report yesterday showing that the economy grew at a revised 5.8 percent rate in the first quarter -- its fastest pace in a decade.

A warning from Intel Corp., the world's largest computer chip maker, that its second-quarter profits and sales will be below estimates, also heightened concerns that the economy may be losing steam.

"The slowdown is for real," said Brian Wesbury, an economist at Griffin, Kubik, Stephens & Thompson Inc. in Chicago. "We're seeing slower auto sales in May, the housing market is coming off, and the GDP report has signs within it that growth in the second quarter won't be as strong." New home sales fell a larger-than-expected 7.7 percent in April to a seasonally adjusted annual rate of 772,000 as cold weather contributed to sales declines, Commerce Department figures showed. That's a reversal from a revised 2.0 percent gain in March.

Separately, the Commerce Department revised upward its estimate of how fast the gross domestic product, the nation's total output of goods and services, expanded in the first quarter. The change from the agency's original estimate of a 5.6 percent growth rate reflected stronger exports and inventory investment. Inflation remained under wraps and corporate profits set a record, the report showed.

Another report yesterday showed that U.S. manufacturing PTC activity continued to expand in the Midwest during May, though at a slower pace than it did in April, while prices rose, the Purchasing Management Association of Chicago said.

Consumers more upbeat

Consumers also were a little more upbeat about their finances and economic prospects in May than in April, judging from a University of Michigan study. Its final index of consumer sentiment for May rose to 103.2 from 101.4 in April, up from a preliminary estimate of 101.0.

The index, based on 100 set in 1966, also rose in each of the three previous months. When the index changes, Americans are more or less comfortable with their finances and the state of the economy.

On financial markets, Intel shares fell almost 16 percent in the first minutes of trading, but recovered somewhat and closed at $151.50, still down more than 12 points. The Dow Jones industrial average, which fell more than 88 points in the morning, ended up almost a point at 7,331.04. The benchmark 30-year Treasury bond, meanwhile, rose 3/4, pushing down its yield almost 7 basis points to 6.91 percent.

Yesterday's reports suggest that the economy's robust growth was confined to the first three months of the year. "I do see the economy in the 3 percent GDP range for the remainder of the year," AlliedSignal Inc. Chief Executive Officer Lawrence Bossidy said in a recent Bloomberg Forum interview.

In the current quarter, which ends June 30, growth will probably slow to 2 percent to 2.5 percent, according to many analysts, as consumer spending winds down and unsold goods pile up in stores and warehouses. What's more, domestic and overseas competition, along with consumer resistance, make it difficult to raise prices, he said. "I don't see any signs of significant inflation," Bossidy said.

Federal Reserve Chairman Alan Greenspan "is right about the economy slowing down," said economist Wesbury. "It's not moving into a recession, it's moving back to much more tame growth."

In the months ahead, higher borrowing costs, rising levels of consumer debt and a slowing economy could cause home sales to weaken even more. "There's more and more competition [among homebuilders] and less of a push in demand," said Robert Strudler, chairman and chief executive officer of U.S. Home Corp. in Houston, Texas.

Moreover, sales of previously owned homes, which account for 85 percent of all residential real estate sales, also declined in April, according to statistics released Tuesday by the National Association of Realtors.

The government initially estimated that March home sales fell 2.5 percent. February was revised to a decline of 0.2 percent from a previously reported gain of 1.1 percent. Before the report, analysts expected a 1.7 percent decline for April.

The overall first-quarter GDP increase is the largest since a 6.0 percent gain in the final quarter of 1987, a government analyst said.

The report also showed that real final sales, which exclude the effects of inventory changes, rose 3.8 percent in the first quarter, down from the previously reported 3.9 percent gain, as the increase in consumer spending was revised lower.

The government issues three estimates of each quarter's GDP. The latest revisions reflect an even bigger increase in business inventories than previously estimated, $51.4 billion, and stronger exports of American-made goods.

Pub Date: 5/31/97

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