WASHINGTON - U.S. new-home sales soared to a record and factory orders increased in May, giving the economy a boost amid flagging consumer confidence and falling stock prices.
The 8.1 percent increase to 1.03 million new homes at an annual rate followed a 3.9 percent April rise, the Commerce Department said yesterday. The higher-than-expected numbers mean 2002 is likely to be the best ever for new-home sales.
In addition, orders for durable goods - those that are designed to last three years or more - rose 0.6 percent, the fifth rise in six months.
People are turning to homes as an investment, while the stock market founders this year, helping drive the economy's rebound, economists said.
Federal Reserve policy-makers, wanting to ensure the recovery strengthens, left their benchmark interest rate at a four-decade low of 1.75 percent yesterday.
"The difficulty in the stock market means people are looking to their homes as a great place to invest," said Norman H. Wesley, chairman and chief executive of Fortune Brands Inc., maker of Jim Beam bourbon, Moen faucets and Titleist golf balls.
U.S. Treasury securities rose as investors sought the safety of government debt after WorldCom Inc.'s announcement that it misreported $3.9 billion in expenses, one of the largest accounting frauds in U.S. history.
The increase in new-home sales was the largest since November 2001 and exceeded expectations of a 0.5 percent rise. New homes account for 15 percent of all sales, while previously owned houses account for the rest.
Maytag Corp. this month raised its profit forecasts as people furnish their newly bought homes. That should help the rebound, because consumer spending makes up two-thirds of the economy.
Sales rose in all regions, including the Northeast, where they surged 27 percent. The inventory of new homes for sale fell in May to a 3.8 months' supply, the lowest since December. That suggests builders will have to step up construction to meet demand that's been driven in part by falling mortgage rates.
MDC Holdings Inc., the ninth-largest homebuilder by revenue, said Tuesday that it expects second-quarter earnings to exceed analysts' estimates after orders set records in March, April and May. Orders for June already have exceeded the 638 received a year earlier.
The rate on a 30-year fixed mortgage fell to 6.81 percent in May from an average rate of 6.99 percent in April, according to figures from Freddie Mac, the No. 2 buyer of U.S. mortgages. The median price of new homes fell last month to $170,200 from $186,600 in April, Commerce said.
The home sales and durable goods reports "were quite good news and counter the general gloom that now faces the stock market because of the problems at WorldCom," said Lynn Reaser, chief economist at Banc of America Capital Management Inc. in St. Louis.
The economy, which expanded at the fastest rate in two years last quarter, probably slowed to a 2.8 percent rate of growth from April to June, according to a Bloomberg News survey of economists. The economy grew 5.6 percent at an annual rate in the first three months of this year.
Business investment in new equipment has shown signs of picking up. Orders for non-defense capital goods excluding aircraft, a gauge of business investment, rose 0.2 percent, the second-straight rise, the government figures showed.
And companies that pared inventories by a record amount late last year - at the same time consumer spending stayed resilient - are beginning to place more orders with factories. Maytag reported an increase in orders because its customers don't have enough appliances on hand to meet sales.
Business reduced inventories in the first quarter at a $25.7 billion rate after a record $119.3 billion pace of decline in the final three months of last year. Inventories of durable goods fell in May for a 16th-straight month.
Purchasing managers will have to replenish stockpiles even if they are concerned about a recovery, economists said. Maytag, the third-largest U.S. appliance maker, raised its second-quarter and full-year profit forecasts this month because of higher sales and lower costs.
The company has been selling more higher-priced appliances, such as Hoover Floor Mate floor cleaners, as homes sell at a record pace.
Excluding transportation equipment, durable goods orders rose 0.6 percent after increasing 3.8 percent. Orders for computers and electronics products rose 1 percent after rising 2.9 percent. Orders for communications equipment rose 1.6 percent last month. Primary metal orders increased 0.9 percent.