U.S. economy shows signs of shrugging off higher borrowing costs
(Reuters) – U.S. home resales surged in August to a 6-1/2-year high and factories grew busier early this month in the Mid-Atlantic region, signs that rising borrowing costs might be weighing only modestly on the economy.
This could make the Federal Reserve more willing to begin reducing a bond-buying stimulus program, although technical problems in processing jobless claims last week muddied the view of the labor market’s health.
The National Association of Realtors said on Thursday existing home sales grew 1.7 percent last month to an annual rate of 5.48 million units, the highest since early 2007.
Analysts had expected resales to decline, and the report gave a signal of growing strength in America’s housing market despite a sharp rise in mortgage rates since May.
“The economy is grinding its way higher,” said Mark Lehmann, president of JMP Securities in San Francisco.
The Fed – the U.S. central bank – said on Wednesday it was holding off on a plan to reduce its stimulus program in part due to concerns that tighter financial conditions would hold back the broader economy.
Interest rates have risen for long-term loans since Fed Chairman Ben Bernanke hinted in May that the bank could begin reducing its $85 billion in monthly bond purchases soon.
The manufacturing sector also is showing signs of brisk growth. Factory activity in the U.S. mid-Atlantic region increased by the most in more than two years in September and firms’ optimism about the future hit a 10-year high, according to a survey conducted by the Philadelphia Federal Reserve Bank.
The Philadelphia Fed’s business activity index jumped to 22.3 in September, easily beating economists’ expectations for a reading of 10.0.
Any reading above zero indicates expansion in the region’s manufacturing. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.
And in another indication the economy is shrugging off higher borrowing costs, an index of U.S. leading indicators advanced by more than expected in August.
The private sector Conference Board said on Thursday that its Leading Economic Index gained 0.7 percent to 96.6 last month, compared to a 0.5 percent rise in July.
Separately, initial claims for state unemployment benefits increased 15,000 to a seasonally adjusted 309,000, the Labor Department said.
It will be hard to take the report at face value, however. Claims data have been thrown into disarray since an update to government computer systems in California, the nation’s most populous state, and Nevada created a backlog in the processing of new claims two weeks ago.
That initially led to a sharp decline in new processed claims earlier this month, and a Labor Department analyst said the two states still appeared to be working through the backlog, which he said could take another week or two.