Bloomberg News

Business Activity, Home Sales in U.S. Beat Forecasts: Economy

December 29, 2011

Dec. 29 (Bloomberg) -- Companies cranked out more goods in December and pending sales of existing homes jumped in November for a second month, pointing to a pickup in U.S. economic growth as 2011 comes to a close.

The Institute for Supply Management-Chicago Inc. said today its business barometer was little changed at 62.5 from a seven- month high of 62.6 in November. The index of signed contracts to buy previously owned houses rose 7.3 percent after climbing 10.4 percent the prior month, the National Association of Realtors said. Both figures surpassed the median estimate of economists surveyed by Bloomberg News.

“2011 is ending on a solid note,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who forecast a reading of 63 for the Chicago index. “Manufacturing has some momentum,” he said, and “we’re starting to see some signs of life in housing.”

Combined with a drop in firings over the past month and improving consumer confidence, the data show the world’s largest economy may be strengthening enough to fend off major damage from the European debt crisis. Stocks rallied, buoyed by the stronger-than-projected readings and by a decline in Italian borrowing costs.

The Standard & Poor’s 500 Index climbed 0.7 percent to 1,258.01 at 11:28 a.m. in New York. Treasury securities were little changed with the yield on the benchmark 10-year note at 1.92 percent, the same as late yesterday.

Inflation Outlook

A report from Europe today showed the sovereign debt crisis is damping inflation pressures. The rate of growth in M3 money supply, which the European Central Bank uses as a gauge of future price pressures, fell to 2 percent in November from 2.6 percent a month earlier, the central bank said. The decline may give policy makers more room to reduce interest rates to a record low early next year.

In Asia, industrial production in South Korea unexpectedly fell last month. The 0.4 percent decline followed a 0.6 percent drop in October, Statistics Korea said today.

The number of Americans filing claims for jobless benefits dropped to 375,000 on average over the past four weeks, the fewest since June 2008, Labor Department figures showed today in Washington. Applications rose for the first time in a month for the week ended Dec. 24, climbing by a more-than-forecast 15,000 to 381,000.

Last week’s increase says more about their volatility during this time of year than about the state of the job market, according to economists like Eric Green. Their recent decline has stoked speculation the U.S. is on the cusp of showing bigger gains in employment.

More Jobs

“The labor market is improving,” said Green, chief market economist at TD Securities Inc. in New York. “You should expect to see stronger payroll numbers going forward.”

The economy generated 150,000 jobs in December, up from 120,000 the prior month, economists forecast the Labor Department’s monthly jobs report on Jan. 6 will show.

Consumer confidence last week eased from a five-month high, showing an improvement in sentiment will take time to develop, another report showed. The Bloomberg Consumer Comfort Index fell to minus 47.5 in the period ended Dec. 24 from minus 45 the prior week, the highest reading since July.

“While consumer sentiment has shown signs of stabilizing, it is still quite fragile,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Households remain stressed, and it would not be surprising to see further declines in sentiment in early 2012 once the bill for the recent increase in consumer spending comes due.”

Survey Results

Readings greater than 50 for the Chicago index signal growth. Economists forecast the gauge would fall to 61, according to the median of 49 estimates in a Bloomberg survey. Projections ranged from 59 to 65.

Gains in car sales and holiday spending on other goods and services at a time when companies are holding lean inventories may pave the way for stronger factory orders.

The Chicago group’s measures of employment and order backlogs climbed, while production and new orders grew at a slower pace than in November.

Moline, Illinois-based Deere & Co., the world’s biggest farm machinery makers, is forecasting 2012 will see another increase in sales as the global farm industry thrives and the world economy expands.

“John Deere enters 2012 on a very strong pace,” head of investor relations Susan Karlix said on a conference call last month. “We’re looking for further improvement in the year ahead as a result of some pickup in overall economic conditions, and a global farm sector that shows every sign of continuing to charge ahead.”

Chicago Survey

Economists watch the Chicago index and other regional manufacturing reports for an early reading on the national outlook. The Chicago group says its membership includes both manufacturers and service providers with operations in the U.S. and abroad, making the gauge a measure of overall growth.

The ISM’s national factory index climbed in December to 53.2 from 52.7 the prior month, according to the median projection in a Bloomberg survey ahead of the group’s report Jan. 3. Like the Chicago survey, a reading greater than 50 signals expansion.

The back-to-back jump in pending home sales brought the real-estate agents’ index to the highest level since April 2010. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg survey.

“Housing affordability conditions are at a record high and there is a pent-up demand from buyers who’ve been on the sidelines, but contract failures have been running unusually high,” NAR chief economist Lawrence Yun said in a statement accompanying the release. “Some of the increase in pending sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage.”

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

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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


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