Sales of new U.S. homes fell 1.6 percent last month to an annual rate of 915,000 from a downwardly revised rate of 930,000 in April, the Commerce Department said on Tuesday. Analysts had been looking for May new home sales of 925,000.The news was not all bad though with home prices inching up 1.5% after a steep decline in April but housing remains a problem for the economy.
"Housing's contribution to (economic) growth will be negative in both the second quarter and the third quarter," said Steven Wood, chief economist at Insight Economics in Danville, California.With nearly $100 billion in subprime mortgages adjusting before the end of the third quarter we could see foreclosures rise even more. That rise would certainly hurt prices and contribute to the consumers unease over the economy.
The Conference Board said its index of consumer sentiment fell to 103.9 this month, the weakest since August 2006, from an upwardly revised 108.5 in May. Economists polled by Reuters had been looking for a reading of 105.5.The most important thing to remember is that consumer spending is two thirds of the economy. If consumers have fear about the future they will pull back on spending and cause the very problems they hope to avoid. I have said for some time that I beleive the U.S. economy will slip into a recession before the end of the year. If that happens it is hard to see how any Republican can win the White House.
The data as a whole had little impact on the bond market, but stocks erased early gains on the relatively gloomy economic news.