U.S. Existing-Home Sales Unexpectedly Fall

May 19, 2011, 4:36 PM EDT By Bob Willis and Shobhana Chandra

(Updates with closing markets in fifth paragraph.)

May 19 (Bloomberg) -- Sales of existing U.S. homes unexpectedly declined, manufacturing in the Philadelphia region slowed and consumer confidence dropped, pointing to an economy that is struggling to regain momentum following the surge in energy costs.

Purchases of existing homes decreased 0.8 percent to a 5.05 million annual pace in April, the National Association of Realtors said today in Washington. The Federal Reserve Bank of Philadelphia’s general economic index fell in May to the weakest reading in seven months, and the Bloomberg Consumer Comfort Index slumped to a nine-month low, other reports showed.

Gasoline prices hovering close to $4 a gallon and rising grocery bills may discourage American households from taking on big purchases like houses just as manufacturing cools after leading the economy out of the recession. Another report showing claims for jobless benefits are retreating after an April surge raises the odds any economic slowdown will prove temporary.

“We’re going through a soft patch,” said Eric Green, chief market economist at TD Securities Inc. in New York. “Housing is just bouncing along the bottom. Job demand is real, and we’re going to emerge past this soft patch.”

Stocks advanced, helped by the larger-than-forecast decline in jobless claims. The Standard & Poor’s 500 Index rose 0.2 percent to 1,343.6 at the 4 p.m. close in New York. Earlier, stocks declined after the reports on housing, confidence and manufacturing, combined with a worse-than-projected reading for the index of leading economic indicators.

Worse Than Forecast

The median forecast of 75 economists surveyed by Bloomberg News projected sales of existing houses would climb to a 5.2 million rate. Estimates ranged from 5.09 million to 5.40 million. Purchases reached a record 7.08 million in 2005, and slumped to a 13-year low of 4.91 million last year.

As of March 31, about 5.6 million houses were either in foreclosure or their owners were more than 30 days late in making mortgage payments, according to Bloomberg calculations, raising the risk that property values will keep falling. That would make any sustained recovery difficult to achieve.

About 37 percent of all transactions last month were of distressed properties, which were either in foreclosure or short sales where a bank agrees to take less than the outstanding mortgage balance, according to today’s report from the agents’ group. Cash transactions accounted for 31 percent after a record 35 percent in March, NAR chief economist Lawrence Yun said in a press conference as the figures were released.

The Realtors group began tracking the monthly figure in August 2008, and the share on a yearly basis before that was around 10 percent, Yun has said.

Distressed Sales

“Existing-home sales continue to have a strong bent to distressed sales and all-cash deals, which implies ongoing weakness in prices,” said Neil Dutta, an economist at Bank of America Merrill Lynch.

Manufacturers, facing a less pressing need to rebuild inventories and supply disruptions following the earthquake and tsunami in Japan, may also be slowing down. The Federal Reserve Bank of Philadelphia’s general economic index fell to 3.9, the weakest reading since October, from 18.5 a month earlier. Figures greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

The report “points to a slowing, but not a dramatic slowing, in manufacturing,” said Bricklin Dwyer, an economist at BNP Paribas in New York. “The inventory rebuilding cycle has tapered off and now we have a normalization,” he said, and “Japanese supply-chain disruptions are likely reflected.”

Confidence Wanes

The Bloomberg Consumer Comfort Index declined to minus 49.4 in the period to May 15, the worst reading since August, from the prior week’s minus 46.9. A gauge of personal finances plunged to the weakest level since October 2009, and a monthly measure of economic expectations held at a seven-month low.

Retailers like Wal-Mart Stores Inc. are among those seeing sales drop as energy prices climb, pointing to a slowdown in consumer purchases, which account for about 70 percent of the economy. The world’s largest retailer this week said sales at U.S. stores open at least a year dropped 1.1 percent, the eighth decline in a row. Customers are still struggling with economic uncertainty, buying more generic items rather than their more costly name-brand counterparts, executives said in a May 17 pre- recorded call.

Customers are making fewer trips to stores because of the increase in fuel prices, U.S. stores chief Bill Simon said on the call.

Leaders Drop

The Conference Board’s index of leading indicators, a gauge of the outlook for the next three to six months, fell 0.3 percent in April, the first drop in 10 months, the New York- based group said. The measure was depressed by a pickup in jobless claims that reflected temporary setbacks including auto- plant shutdowns caused by the disaster in Japan.

“Momentum is softening,” said Bank of America Merrill Lynch’s Dutta. “The manufacturing sector is losing some of its luster, softening alongside the broader economy.”

Another report today showed fewer Americans than forecast filed first-time claims for unemployment benefits last week. Applications declined by 29,000 to 409,000, according to figures from the Labor Department. Economists projected 420,000, according to the median forecast in a Bloomberg survey.

Applications for unemployment benefits surged last month due to events that seasonal variations failed to take into account, such as a late school holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan, the Labor Department has said.

Claims “are unwinding the run-up in April,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. “The labor market is slowly improving. It allows slow, but positive growth in consumer spending.”

--With assistance from Chris Middleton, Timothy R. Homan and Alex Kowalski in Washington. Editors: Carlos Torres, Vince Golle

To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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