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By Jason Simpkins
Sales of new homes and U.S. factory orders for durable goods both picked up in July, a development that could enable Federal Reserve policymakers to persuade themselves that an interest-rate reduction isn't needed.
The U.S. Commerce Department said Friday that new home sales rose 2.8% in July after falling 4% in June. And a second report showed that factory orders for big-ticket goods climbed 5.9% last month.
Both reports beat analysts' expectations by a wide margin. Given the uncertain climate in the home and credit markets, many market-watchers had anticipated yet another decline in home sales. And most economic forecasts had anticipated a mere 1% increase in factory orders. Instead they made their biggest jump in 10 months.
The manufacturing report detailed a 5.9% increase in new orders for durable goods, which are typically expensive manufactured items expected to last more than three years. Orders for automobiles rose 9.8%, the most since January 2003. Demand for primary metals picked up 7.9%, its biggest increase since July 2004. The demand for commercial airplanes rose 12.6%, while orders for aircraft destined for defense purposes climbed 15.8%.
The figures are a positive sign that businesses are continuing to invest, but investors shouldn't get too comfortable. After extremely tight credit conditions hung like a dark cloud over the month of August, we'll likely see housing market wounds reopened in the near future. Even with the July increase in home sales, overall sales are down 10.2% from last year. While the median price of a new home went up in July, the price of the average home dropped from $311,300 to $300,800.