Manufacturing, real estate data paint a muddled picture
Modest growth evident, though commercial property continues slide

By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, December 2, 2009

The uneven nature of the economic recovery was on display again Tuesday with the release of mixed data on pending home sales, manufacturing and construction spending.

The residential real estate markets showed signs of gaining momentum, in the new data while manufacturing appeared to lose steam after a growth spurt over the summer. More troubling, the commercial real estate sector seemed to be in "free fall," as one analyst put it.

All told, the data did little to help economists assess how fast the economy is growing and whether that growth will be strong enough to generate jobs.

The brightest note came from the National Association of Realtors, which reported a strong gain in the number of pending home sales in October -- the ninth straight month it recorded an increase.

The group's index, which tracks the number of contracts to buy previously owned homes, rose 3.7 percent from September to October. The reading was up 31.8 percent from last October -- the biggest annual gain since the index was created in 2001.

The group attributed the rise to the $8,000 tax credit for first-time buyers. That program was to expire Nov. 30. But it was recently extended to April 30 and expanded to include people who now own homes. In October, when its fate was in flux, people rushed to get in under the deadline, the group said.

Analysts view the data as a leading indicator of future sales because it charts contracts, not actual completed transactions. But serious doubts linger about whether these kinds of gains can be maintained, especially if unemployment keeps rising and government intervention in the housing market is curtailed. The economic recovery, many analysts agree, is a fragile one.

Its volatility is reflected in the manufacturing and construction numbers, also released Tuesday.

The Institute for Supply Management, which surveys large manufacturing businesses and compiles an index based on the results, found that manufacturing continued to expand in November, albeit more slowly.

The index's reading was 53.6, marking the fourth straight month of expansion. A reading under 50 would signal contraction. But the November results fell below October's 55.7 reading, evidence that manufacturing activity may be tapering off.

Paul Dales, an economist at Capital Economics, said last month's results were "not a disaster." In a note to clients, Dale said, "The index is still consistent with fairly decent GDP growth of around 3.5 percent per year."

In a note to their clients, economists at Goldman Sachs said the details of the index were "better than the disappointing headline." For instance, even though there was a larger-than-expected two-point decline, the new-orders component of the index rose 1.8 points, to 60.3, and the gap between orders and inventories improved.

Meanwhile, the closely watched employment component of the index continued to grow, but at a slower pace. The reading was 50.8 in November, down 2.3 points from October.

The results were equally mixed for construction spending.

The Commerce Department reported that month-over-month construction spending was essentially flat in October, at $910.8 billion, suggesting that construction spending has stabilized after dropping for five months in a row.

But the report also included some disappointing results. It showed a sharp downward revision of previous months' spending. Most notably, it revealed that spending in September dropped 1.6 percent, to $910.4 billion, instead of rising 0.8 percent as had been previously estimated.

Meanwhile, spending on home construction rose 4.4 percent in October from September. But spending on commercial projects dropped 2.5 percent.

Given the dramatic revisions of the past month, the newly released data may be just "nonsense," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients. "All we can say with confidence is that the trend in private [non-residential] construction is now clearly in free fall," Shepherdson said.

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