U.S. housing recovery loses a step as pending home sales fall

A real estate sales sign sits outside of a house for sale in Phoenix, Arizona June 2, 2009.

Credit: Reuters/Joshua Lott

By Jason Lange

WASHINGTON | Wed Aug 28, 2013 10:51am EDT

WASHINGTON (Reuters) - Contracts to purchase previously owned U.S. homes fell for the second straight month in July, a sign that rising mortgage rates are taking the steam out of America's housing market recovery.

The National Association of Realtors said on Wednesday its Pending Homes Sales Index, based on contracts signed last month, decreased 1.3 percent to 109.5.

That was a steeper decline than most analysts had expected, and could provoke added caution at the U.S. Federal Reserve over plans to reduce a bond-buying economic stimulus program.

"Higher mortgage rates (are) beginning to take some bloom off the buoyancy in the housing market," said Millan Mulraine, an economist at TD Securities in New York.

The data had little impact on Wall Street, where the focus was on the potential for a military strike by the United States against Syria. U.S. stocks opened flat, while yields on U.S. government debt rose.

Contracts fell across most of the country, with losses concentrated in the Northeast and the West.

The U.S. housing market was battered by the 2007-09 recession but appeared to turn a corner early last year when home prices began to rise again.

Since May of this year, however, mortgage rates have risen dramatically on bets the Fed would reduce monthly bond purchases before long.

Last week, the average rate for 30-year mortgages rose 12 basis points to 4.8 percent, the Mortgage Bankers Association said in a separate report.

Rates have surged more than a percentage point since May, when officials at the Fed began dropping stronger hints that the central bank would begin withdrawing monetary stimulus.

This already appears to be reducing the pace of price gains as well as refinancing activity. Loan applications for home purchases have also fallen sharply since May, although they ticked higher last week.

Still, rates remain low by historical standards, and most economists think the housing sector will continue to recover, albeit at a slower pace.

In a Reuters survey published on Wednesday, economists said household formation and a tight supply of properties available for sale would shield the housing market from a spike in home lending rates.

The poll forecast sales of previously owned homes at an average annual rate of 5.20 million units in the third quarter, picking up slightly to a 5.24 million unit pace in the final three months of the year.

The average 30-year rate was seen averaging 4.17 percent this year, jumping to 4.90 percent in 2014. In the May poll, economists had forecast it would average 3.58 percent this year.

(Reporting by Jason Lange; Editing by Chizu Nomiyama and Krista Hughes)

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Germany, Britain lead Europe's nascent economic recovery

Shoppers cross Oxford Street in central London August 15, 2013.

Credit: Reuters/Toby Melville

By Alexandra Hudson and Olesya Dmitracova

BERLIN/LONDON | Fri Aug 23, 2013 10:30am EDT

BERLIN/LONDON (Reuters) - Germany confirmed on Friday it had enjoyed its fastest rate of economic expansion in more than a year in the second quarter, and Britain revised up its growth to the same rate.

Although recession still haunts many of Europe's major economies, like Italy, Spain and the Netherlands, analysts said the German and British data showed that at least two of the region's major economic engines are moving into a higher gear.

Consumer morale has jumped to its highest level in two years this month, other data showed on Friday, in a bright sign for the current quarter as well.

Strong domestic demand drove a 0.7 percent quarterly increase in German gross domestic product in the second quarter, matching its growth rate in the first quarter of 2012.

Britain's economy expanded at the same rate as Germany's, equaling the growth it recorded in the third quarter of last year, fuelled by a broad-based pick-up in activity.

The signs of robust growth have also led to more upbeat comments from the region's central bankers, who have hitherto hinted at interest rates remaining low for some time to come.

The German figures reflected a construction flurry after a harsh winter, firms' strong appetite for machines and equipment and healthy private consumption.

"The composition of growth is very good. It is being driven more strongly from within, which is good for Germany and the euro zone," said economist Holger Sandte at Nordea.

The euro zone exited a year and a half of recession in the second quarter.

"It is also positive that firms are investing more in equipment and are not so hesitant anymore," added Sandte on the German data.

Policymakers are sounding a bit more positive, too. European Central Bank policymaker Ewald Nowotny said in an interview on Thursday that he saw no reason for an interest rate cut now.

And German Finance Minister Wolfgang Schaeuble, who is preparing for a federal election next month, said he welcomed the prospect of the ECB raising interest rates once the economy improves.

"Low rates are above all an expression of insecurity on debt markets. That cannot last forever - even if it is a relief to the federal budget," he told business daily Handelsblatt.

ECB President Mario Draghi said after the last rate-setting meeting on August 1 that rates will remain low for some time. The ECB has based this 'forward guidance' on the inflation outlook remaining subdued and growth weak.

Purchasing managers indexes this week confirmed strong growth in Germany this month, although they suggested companies in No.2 euro zone economy France are still struggling.

Analysts said that was hard to reconcile with preliminary figures last week showing the French economy grew 0.5 percent in the second quarter.

In Britain, however, signs of recovery have been far less ambiguous over the last couple of months.

"It does look like the recovery is becoming more self-sustaining," said Philip Shaw, economist at Investec.

Stocks gained after the data, which also showed output rose by a surprisingly strong 1.5 percent from a year ago.

British exports rose at the fastest rate since late 2011, and business investment grew faster than household spending, suggesting a shift towards more balanced growth in an economy that has been driven mainly by domestic consumption and imports.

To encourage spending and investment, the Bank of England said earlier this month it would not raise borrowing costs while unemployment remains above 7 percent, a level it did not expect to be breached for at least three years.

But the threshold may be crossed sooner if Britain's recovery maintains momentum, and since the bank gave its forward guidance, the news on the economy has been predominantly upbeat.

"The Bank of England is therefore facing a growing challenge of how to convince the markets and households that interest rates will not need to rise over the next three years," said Chris Williamson, economist at financial data company Markit.

(Writing by Andy Bruce; Editing by Hugh Lawson)

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In Britain, economic recovery increases PM Cameron's political capital

Britain's Prime Minister David Cameron answers questions asked by workers at an upholstery factory in Long Eaton, central England April 22, 2013.

Credit: Reuters/Joe Giddens/Pool

By Guy Faulconbridge and Andrew Osborn

LONDON | Fri Aug 16, 2013 5:21am EDT

LONDON (Reuters) - British Prime Minister David Cameron may be close to pulling off one of the most significant feats of his premiership: delivering a solid economic recovery ahead of a 2015 election.

Two consecutive quarters of growth have shifted the sands of British politics: six months ago, lawmakers in his ruling Conservative party warned him that failure to lead Britain out of stagnation could cost him, and them, the election. Those fearful voices have fallen silent.

After cutting Britain's biggest budget deficit since World War Two by a third, Cameron leads what could be the fastest growing major economy in the European Union this year.

"Will the better economic data change the political landscape? Well, economics is the biggest issue," said Steven Bell, director of multi-asset investment at F&C Asset Management which has about 98 billion pounds ($151.52 billion) under management.

"Having pursued a policy of austerity, the government will get credibility both for prudent management and for the recovery," said Bell. "They will get the credit for this."

Britain's $2.5 trillion economy grew by 0.6 percent in the second quarter after a 0.3 percent rise in the first quarter, putting it on course to grow by at least 1.4 percent this year.

That would be the strongest annual growth since 2010, the year Cameron forced Labour's Gordon Brown from office by forming a coalition government with the Liberal Democrats after no party won an outright majority in a general election.

Some investors say Cameron's policies may in fact be partly to blame for the recovery's long wait. But they still expect the government to benefit.

"The recovery could have happened a lot sooner with a bit more government support for infrastructure spending in particular," said Trevor Greetham, asset allocation director for Fidelity's Investment Solution Group, who has responsibility for $14 billion of assets.

"But that is not the way things tend to work in the minds of the electorate - you cannot say 'well actually this would have happened earlier and we would all be a lot wealthier with a policy that didn't happen'. In reality it is the strength of the economy at the time of an election that tends to matter most."

For Cameron and his finance minister, George Osborne, the political gamble was always on economic growth. But even as signs emerge that their bet may be paying off, they remain cautious.

Party sources say they are acutely aware of the risk of premature triumphalism 21 months before the election.

When asked on almost a daily basis whether Britain is seeing "the green shoots of recovery", Cameron's spokesman says only that the economy "is healing" or "out of intensive care". He always stresses that tough times still lie ahead.

IT'S THE ECONOMY STUPID

Staking their reputation on reducing Britain's debt mountain and nursing the economy back to health, Cameron and Osborne knew they had just a few years to make inroads into what they said was the profligate legacy of the 1997-2010 Labour governments.

But as the economy stagnated, Britain's two most powerful men were branded "dipsticks" by Rupert Murdoch's Sun newspaper and their privileged backgrounds - both went to expensive schools and were members of the same exclusive high-society dining club at Oxford - were mocked.

One outspoken Conservative lawmaker even called them "arrogant posh boys" who "don't know the price of milk".

Cameron's party lost ground in opinion polls and was convulsed by internal rebellions over Britain's ties with the European Union and over gay marriage, while the opposition Labour party warned voters austerity was killing off the recovery.

But from services and consumer spending to house prices, Britons' best loved measure of economic virility, data now shows the world's sixth largest economy may be about to do better than at any time since the onset of the 2007-2008 financial crisis.

Under its new governor, Mark Carney, the Bank of England upgraded its mean growth projection this month by 0.8 percentage points to 2.5 percent in 2014. If achieved, that would be Britain's fastest annual growth rate since 2007.

"A renewed recovery is now underway in the United Kingdom, and it appears to be broadening," Carney said at his first news conference as Bank of England chief while unveiling a promise -- with caveats -- not to raise interest rates above 0.5 percent until unemployment falls below 7 percent.

While a recovery is underway, the economy is a long way from regaining its pre-crisis strength. Britain remains vulnerable to any more shocks from the euro zone debt crisis and voters' incomes are at some of their lowest levels in a decade.

Yet ultra-loose monetary policy, support for the housing market, the potential of North Sea oil production, and the ability to ease the pain of austerity with tax revenues give Cameron one of the best economic backdrops of his premiership.

If he can keep the recovery on track right up to the next election, Cameron's chances of winning - possibly even the Conservatives' first outright victory since 1992 - increase.

If he wins, Cameron has promised an in-out referendum on Britain's membership of the European Union by the end of 2017. Economic growth could ease voter unease at immigration - one of the drivers of anti-European Union feeling in Britain.

LABOUR

Growth leaves the opposition Labour Party and its leader, Ed Miliband, in a tough spot. Labour's drive to convince voters it can run the economy has fallen flat so far: support for Conservative economic management soared to 40 percent from 28 percent in June, according to a Guardian/ICM poll.

The poll put Labour's overall support at 35 percent, a mere three percentage points higher than the Conservatives. Labour's lead was 12 percentage points in the same poll in February.

Now it is Miliband and Labour finance chief Ed Balls, rather than Cameron and Osborne, who are mocked by the domestic press.

After a protester threw an egg at Miliband's head during a visit to an East London market in August, the Sun branded him "Scrambled Ed" and cast him in a cartoon as the broken-egg character from the English nursery rhyme Humpty Dumpty.

But Labour says improving economic data shows no signs of translating into higher living standards.

"It may be a recovery for those at the top, but it is not a recovery for most people," a senior Labour source told Reuters. "For most, living standards are being squeezed as inflation outstrips wages more and more. This is what we're going to be pointing out."

In a change of tack, Miliband has put the cost of living at the heart of his economic policy, noting rising costs for everything from utilities to train fares.

He plans to attack Cameron with the slogan: "They're out of touch. You're out of pocket."

(Editing by Peter Graff)

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Analysis: U.S. retailers say uneven recovery keeps consumers cautious

By Phil Wahba and Lisa Baertlein

Fri Aug 16, 2013 1:03am EDT

n">(Reuters) - From Wal-Mart Stores Inc and Gap Inc to Macy's Inc and McDonald's Corp, chains that cater to middle- and lower-income Americans say they are feeling the pinch of an uneven economic recovery.

A host of retailers have reported tepid sales lately, highlighting the stress that consumers are feeling because of higher payroll taxes, expensive gasoline and a slow job market four years after the U.S. economy started to rebound.

"Everyone wants to talk about recovery - it's like the unrecovery," Susquehanna Financial Group analyst Bob Summers said following the Wal-Mart results. "The demographic that they cater to, not only has it not seen improvement, I would argue that things have gotten worse."

Look no further than Macy's for a snapshot of the consumer. For its namesake mid-tier department stores, Macy's reported the first decline in same-store sales in nearly four years this week, and said shoppers had been gravitating to its less expensive items. That's a contrast with Macy's upscale Bloomingdale's, which came in with strong results.

The trend also turns up in results posted on Thursday by Wal-Mart, which emphasizes low pricing. Its U.S. sales at stores open at least a year unexpectedly fell 0.3 percent last quarter, a second decline in a row, prompting the world's largest retailer to lower its sales forecast for the year.

Last week, a group of U.S. retailers including Costco Wholesale Corp and Gap reported modest gains in July same-store sales, thanks largely to bargains.

Adding to the pressure, Macy's said many shoppers are redirecting their spending to their cars, housing and home improvement.

Automakers reported a 14 percent U.S. sales increase in July from a year earlier, industry consultant Autodata Corp said.

Wall Street analysts expect home improvement chain Home Depot to report same-store sales rose 7 percent, the biggest gain of any major retailer Thomson Reuters tracks.

Outside of home improvement and cars, many retailers say economic conditions were less than ideal.

In July, U.S. employers slowed their pace of hiring, with the number of jobs outside of farming increasing less than economists expected.

The average price for a gallon of gasoline in the United States was still high: at the end of July, it was $3.67 compared to $3.51 a year earlier, according to the Lundberg survey.

As of May, 47.6 million Americans, or one in seven, received food aid - highlighting the ongoing strain on Americans struggling to make ends meet. That was 1.1 million more than a year earlier, and 7 million more than in 2010.

Real wages are also stagnating: they fell 0.1 percent between June 2012 and June 2013, according to the U.S. Bureau of Labor Statistics, excluding inflation and civil servants and military personnel.

"The consumer doesn't quite have the discretionary income, or they're hesitant to spend what they do have," Wal-Mart Chief Financial Officer Charles Holley told reporters on a call.

A recent government report showed 5.7 percent of Americans who had jobs in July could not get enough hours to qualify as full-time workers, the same percentage as in June.

While the unemployment rate has fallen steadily over the last year, the share of part-time workers who want more hours has barely dropped, according to BLS statistics.

"Workers are not doing well," said Elizabeth Ashack, an economist at the BLS. "They're losing ground because wages are not growing in real terms."

Teen employment levels are down this summer, and that may be contributing to same-store sales declines at Aeropostale Inc and American Eagle Outfitters.

SPENDING ON ESSENTIALS

The latest batch of retail reports shows the ways in which customers are pulling back again.

Macy's said shoppers at its namesake chain were holding back on anything nonessential, adding it didn't expect to make up the sales shortfall this year and cut its forecasts.

Kohl's said comparable sales had slid for purchases paid for with a credit card, transactions typically made by people on a budget. And both Wal-Mart and Costco said sales of higher-ticket items such as electronics and games have been soft.

Several companies have said shoppers are waiting longer to buy back-to-school items, suggesting they are waiting for deals and that they see no urgency to hit stores.

This week's results may presage more of the same next week, when big chains like Target Corp, J.C. Penney Co Inc and Sears Holdings Corp report earnings.

In May, Target cut its profit forecast after weak sales, and this week Wells Fargo lowered its profit estimates for the discounter saying Target was unlikely to have been spared by the pullback in spending.

The S&P Index retail was down 1.9 percent on Thursday, and many retail experts predicted it will be slow going for the industry for a while.

"The U.S. consumer is weary in this turnaround. It has been quite anemic, relatively speaking. I think many of them just don't see it on Main Street," said Eric Beder at Brean Capital LLC.

(Reporting by Phil Wahba, Atossa Araxia Abrahamian and Dhanya Skariachan in New York, Jason Lange in Washington and Lisa Baertlein in Los Angeles; Editing by Edward Tobin and Lisa Shumaker)

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In Britain, economic recovery increases PM Cameron's political capital

Britain's Prime Minister David Cameron answers questions asked by workers at an upholstery factory in Long Eaton, central England April 22, 2013.

Credit: Reuters/Joe Giddens/Pool

By Guy Faulconbridge and Andrew Osborn

LONDON | Fri Aug 16, 2013 5:21am EDT

LONDON (Reuters) - British Prime Minister David Cameron may be close to pulling off one of the most significant feats of his premiership: delivering a solid economic recovery ahead of a 2015 election.

Two consecutive quarters of growth have shifted the sands of British politics: six months ago, lawmakers in his ruling Conservative party warned him that failure to lead Britain out of stagnation could cost him, and them, the election. Those fearful voices have fallen silent.

After cutting Britain's biggest budget deficit since World War Two by a third, Cameron leads what could be the fastest growing major economy in the European Union this year.

"Will the better economic data change the political landscape? Well, economics is the biggest issue," said Steven Bell, director of multi-asset investment at F&C Asset Management which has about 98 billion pounds ($151.52 billion) under management.

"Having pursued a policy of austerity, the government will get credibility both for prudent management and for the recovery," said Bell. "They will get the credit for this."

Britain's $2.5 trillion economy grew by 0.6 percent in the second quarter after a 0.3 percent rise in the first quarter, putting it on course to grow by at least 1.4 percent this year.

That would be the strongest annual growth since 2010, the year Cameron forced Labour's Gordon Brown from office by forming a coalition government with the Liberal Democrats after no party won an outright majority in a general election.

Some investors say Cameron's policies may in fact be partly to blame for the recovery's long wait. But they still expect the government to benefit.

"The recovery could have happened a lot sooner with a bit more government support for infrastructure spending in particular," said Trevor Greetham, asset allocation director for Fidelity's Investment Solution Group, who has responsibility for $14 billion of assets.

"But that is not the way things tend to work in the minds of the electorate - you cannot say 'well actually this would have happened earlier and we would all be a lot wealthier with a policy that didn't happen'. In reality it is the strength of the economy at the time of an election that tends to matter most."

For Cameron and his finance minister, George Osborne, the political gamble was always on economic growth. But even as signs emerge that their bet may be paying off, they remain cautious.

Party sources say they are acutely aware of the risk of premature triumphalism 21 months before the election.

When asked on almost a daily basis whether Britain is seeing "the green shoots of recovery", Cameron's spokesman says only that the economy "is healing" or "out of intensive care". He always stresses that tough times still lie ahead.

IT'S THE ECONOMY STUPID

Staking their reputation on reducing Britain's debt mountain and nursing the economy back to health, Cameron and Osborne knew they had just a few years to make inroads into what they said was the profligate legacy of the 1997-2010 Labour governments.

But as the economy stagnated, Britain's two most powerful men were branded "dipsticks" by Rupert Murdoch's Sun newspaper and their privileged backgrounds - both went to expensive schools and were members of the same exclusive high-society dining club at Oxford - were mocked.

One outspoken Conservative lawmaker even called them "arrogant posh boys" who "don't know the price of milk".

Cameron's party lost ground in opinion polls and was convulsed by internal rebellions over Britain's ties with the European Union and over gay marriage, while the opposition Labour party warned voters austerity was killing off the recovery.

But from services and consumer spending to house prices, Britons' best loved measure of economic virility, data now shows the world's sixth largest economy may be about to do better than at any time since the onset of the 2007-2008 financial crisis.

Under its new governor, Mark Carney, the Bank of England upgraded its mean growth projection this month by 0.8 percentage points to 2.5 percent in 2014. If achieved, that would be Britain's fastest annual growth rate since 2007.

"A renewed recovery is now underway in the United Kingdom, and it appears to be broadening," Carney said at his first news conference as Bank of England chief while unveiling a promise -- with caveats -- not to raise interest rates above 0.5 percent until unemployment falls below 7 percent.

While a recovery is underway, the economy is a long way from regaining its pre-crisis strength. Britain remains vulnerable to any more shocks from the euro zone debt crisis and voters' incomes are at some of their lowest levels in a decade.

Yet ultra-loose monetary policy, support for the housing market, the potential of North Sea oil production, and the ability to ease the pain of austerity with tax revenues give Cameron one of the best economic backdrops of his premiership.

If he can keep the recovery on track right up to the next election, Cameron's chances of winning - possibly even the Conservatives' first outright victory since 1992 - increase.

If he wins, Cameron has promised an in-out referendum on Britain's membership of the European Union by the end of 2017. Economic growth could ease voter unease at immigration - one of the drivers of anti-European Union feeling in Britain.

LABOUR

Growth leaves the opposition Labour Party and its leader, Ed Miliband, in a tough spot. Labour's drive to convince voters it can run the economy has fallen flat so far: support for Conservative economic management soared to 40 percent from 28 percent in June, according to a Guardian/ICM poll.

The poll put Labour's overall support at 35 percent, a mere three percentage points higher than the Conservatives. Labour's lead was 12 percentage points in the same poll in February.

Now it is Miliband and Labour finance chief Ed Balls, rather than Cameron and Osborne, who are mocked by the domestic press.

After a protester threw an egg at Miliband's head during a visit to an East London market in August, the Sun branded him "Scrambled Ed" and cast him in a cartoon as the broken-egg character from the English nursery rhyme Humpty Dumpty.

But Labour says improving economic data shows no signs of translating into higher living standards.

"It may be a recovery for those at the top, but it is not a recovery for most people," a senior Labour source told Reuters. "For most, living standards are being squeezed as inflation outstrips wages more and more. This is what we're going to be pointing out."

In a change of tack, Miliband has put the cost of living at the heart of his economic policy, noting rising costs for everything from utilities to train fares.

He plans to attack Cameron with the slogan: "They're out of touch. You're out of pocket."

(Editing by Peter Graff)

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