US Pending Home Sales Hit 1-Year Low; Manufacturing Data Weak

Contracts to buy previously owned U.S. homes fell to their lowest level in a year in January amid a persistent shortage of properties for sale, which could slow the housing market ahead of the spring selling season.

Other reports Monday showed factory activity contracting in the Midwest and remaining subdued in Texas this month as the manufacturing sector continued to be buffeted by a strong dollar, weak global demand and spending cuts by energy firms.

But coming on the heels of recent strong data on consumer spending, the labor market, industrial production and durable goods orders, Monday's reports did little to change the view that the economy is regaining momentum after slowing to a 1 percent annual rate in the fourth quarter.

"The disappointing data tone points to ongoing weakness in the housing and manufacturing sectors," said Millan Mulraine, deputy chief economist at TD Securities in New York.

"Nevertheless, with underlying domestic fundamentals remaining supportive to growth, the economic recovery should regain its footing in the first quarter."

Growth estimates for the first quarter are above a 2 percent rate.

The National Association of Realtors said its pending home sales index declined 2.5 percent to 106 last month, the lowest level since January of last year. The NAR attributed the drop to tight housing inventories, which are limiting choice for potential buyers and pushing up home prices.

A massive snowstorm that blanketed the Northeast region in late January was also blamed for the decline in signed contracts. Economists polled by Reuters had forecast pending home sales rising 0.5 percent last month.

Housing Still Recovering

U.S. stocks were trading higher after China moved to boost its slowing economy and rising oil prices buoyed investor sentiment. The dollar firmed slightly against a basket of currencies. Prices for longer-dated U.S. government bonds rose.

Pending home sales become sales after a month or two, and January's unexpected drop suggested home resales will likely weaken after rising only 0.4 percent last month. Contracts were up 1.4 percent from a year ago.

Pending home sales tumbled 3.2 percent in the Northeast and plunged 4.9 percent in the Midwest. They rose 0.3 percent in the South but decreased 4.5 percent in the West, which has seen a rapid increase in home prices amid tight inventories.

"While pending home sales have been weak lately, some other housing indicators, including the mortgage purchase application data reported through most of February, have looked strong, giving us hope the housing market is continuing to recover," said Daniel Silver, an economist at JPMorgan Chase & Co. in New York.

In a separate report, the Institute for Supply Management-Chicago said its purchasing managers index fell 8 points to 47.6 in February as production, new orders and order backlogs declined sharply.

Factory employment in the Chicago area fell to its lowest level since November 2009, and firms continued to draw down stocks in February, with inventories remaining in contraction for a fourth straight month.

A third report, from the Federal Reserve Bank of Dallas, showed manufacturing activity in Texas contracted in February, though the pace of decline slowed.

The Dallas Fed's Texas manufacturing index was at -31.8 this month, compared with a reading of -34.6 in January. Texas is one of the states that have been hard hit by the oil price rout.

The factory reports came ahead of the release Tuesday of the Institute for Supply Management's national manufacturing survey, which is expected to show some stabilization in the downtrodden factory sector.

"We still think the restraining effects on manufacturing growth are beginning to diminish, particularly as far as any currency effects on growth are concerned," John Ryding, chief economist at RDQ Economics in New York, said.