WASHINGTON – Consumers and companies are starting to act as if the economic expansion is here to stay.
Purchases of new homes jumped in May to a five-year high, while business investment plans improved for a third straight month, figures from the Commerce Department showed last week. The last time households were this confident was in January 2008, according to another report.
The data point to the self-sustaining expansion the Federal Reserve is seeking to nurture as rising property values boost household wealth and spending, while businesses invest in new equipment to meet growing demand. Stocks climbed early in the week, with the Standard & Poor’s 500 index rebounding from a nine-week low, as the figures supported forecasts the economy will overcome a mid- year slump and accelerate in the second half of 2013.
“It’s all good news,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pa. “The economy is going to gain traction.”
Builders sold 476,000 new properties at an annualized rate last month, a 2.1 percent gain from April, exceeding all estimates in a Bloomberg survey and the most since July 2008, the Commerce Department figures showed. The median selling price climbed to $263,900, up 10.3 percent from May 2012.
And pending home sales jumped 12.5 percent in May compared with May 2012. It was the largest increase in six years.
The demand for housing is driving residential construction and aiding the economic expansion. Consumers who long held off on purchases are entering the market even as borrowing costs rise, encouraged by the increases in property values and gains in employment.
“The housing recovery is alive and well and has a long way to go, and higher rates aren’t going to choke it off,” said Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, who projected a gain to 475,000, matching the highest in the Bloomberg survey. “It’s given the economy, or will give the economy, a lot of oomph.”
Americans are gaining confidence as their biggest asset, a house, becomes more valuable. The New York-based Conference Board’s consumer sentiment index increased to 81.4 in June from 74.3 a month earlier, data from the private research group showed.
Houses aren’t the only thing consumers are more willing to buy as prospects improve. Cars and light trucks sold at a 15.2 million annualized rate in May, putting 2013 on course to be the best year for automakers since 2007, according to industry figures.
The gains in spending, which account for 70 percent of the economy, are helping to bolster the expansion after government budget cuts took effect in March.
“Unambiguously, the economy is showing signs of improvement despite sizable fiscal drag,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. Among the positives “has been the improving labor market, but in addition, wealth in general has been rising.”
“Business capital investment activity is off to a strong showing. If businesses start investing, they’ll add to their workforce.”