US home sales bounce back, 3rd-quarter GDP raised

City A.M. Reporter
SALES of previously-owned US homes rose in November, offering the latest sign the economy was ending the year on a more solid footing after a sluggish third-quarter performance.

The Commerce Department has said the economy grew at an annual rate of 2.6 per cent in the third quarter, a touch above its earlier 2.5 per cent estimate, but more of that output ended up in warehouses.

A separate report from the National Association of Realtors showed existing home sales rose 5.6 per cent in November to a 4.68 million unit annual pace, the highest since June but a still-depressed level that was slightly weaker than expected.

Economists, who had expected GDP growth to be revised to a 2.8 per cent rate, were little fazed and drew comfort from a range of other recent data from retail sales to trade that indicated activity has accelerated in the past few months.

Many forecasters expect gross domestic product to expand at a 3 per cent to 3.5 per cent pace in the fourth quarter.

"We expect more economic momentum here at year end carrying over into 2011, obviously housing remains impaired," said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.

Stocks on Wall Street edged higher, putting the broader Standard & Poor's 500 index on track for a fifth-straight winning session. Prices for U.S. government debt dipped, while the dollar was flat against a basket of currencies.

The economy, which expanded at an anemic 1.7 per cent rate in the second quarter, is expected to receive support next year from an $858bn (£652bn) tax cut deal that led forecasters to raise 2011 growth estimates by as much as a percentage point.

The tax plan is seen complementing the Federal Reserve's program to buy $600bn worth of government bonds to keep borrowing costs tamped down and shore up the recovery.

A key question hanging over the economy is whether the level of inventories held by businesses is appropriate given the pace of sales.

Business inventories increased $121.4bn in the third quarter rather than the $111.5bn estimated previously. Without the inventory buildup, the economy only expanded at a 0.9 per cent pace.

While the stockpiling implies a softer-than-otherwise pace of growth in the fourth quarter, some businesses may be happy to add further to inventories given signs of strong sales in October and November.

The government revised down the third-quarter increase in consumer spending to a 2.4 per cent rate from 2.8 per cent, but all indications are that spending has since picked up.