Housing, regional factory data show economy's stamina

Thu Jun 20, 2013 1:30pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - Home resales hit a 3-1/2-year high in May and factory activity in the Mid-Atlantic region rebounded this month, backing the Federal Reserve's view that risks to the economy have diminished.

While other data on Thursday showed more Americans than expected filed new claims for unemployment benefits last week, the increase was not big enough to signal a material shift from the recent pace of moderate job growth.

Higher taxes and deep government spending cuts that took effect this year had raised fears that the economy could slow abruptly, but the recovery appears to moving to firmer ground.

"The drag from tighter fiscal policy is starting to dissipate. We have passed the worst of the fiscal-induced slowdown," said Millan Mulraine, a senior economist at TD Securities in New York.

The data came a day after the Fed painted a fairly upbeat picture of the economy and said it expected to slow the pace of its bond-buying stimulus later this year, bringing it to a halt around the middle of 2014. The central bank is buying $85 billion in bonds per month in an effort to keep interest rates low and drive down still-high unemployment.

Existing home sales jumped 4.2 percent to an annual rate of 5.18 million units, the highest level since November 2009, the National Association of Realtors said.

At the same time, the median home price surged 15.4 percent from a year ago to $208,000. It was the biggest year-over-year increase since 2005 and left prices at their highest level since July 2008.

Analysts said the economy's resilience in the face of Washington's belt-tightening largely reflects the spillover effect from surging home prices, which are supporting household net worth and buoying consumer confidence.   Continued...

A single family home is shown for sale in Encinitas, California May 22, 2013. REUTERS/Mike Blake