Some slackening seen in US economy

WASHINGTON - US Government reports suggest a possible cooling in the housing market and some economic slowdown due to high energy prices, but analysts said the economy remained robust enough to permit the Federal Reserve to keep raising borrowing costs.

The Commerce Department said sales of new homes rose more slowly than expected last month and house prices dropped, while new orders for durable goods fell sharply.

However, another report from the Labour Department showed a bigger-than-expected drop in first-time claims for jobless benefits last week. Claims had shot up in the wake of Hurricanes Katrina and Rita, but have come down in the past two weeks.

"We're still getting some mixed data because of the impact of the hurricanes, but the underlying economy still looks healthy," said Gary Thayer, chief economist at AG Edwards & Sons in St Louis. "So I don't think today's data change the Fed's thinking about raising interest rates."

The Fed has increased overnight borrowing costs 11 times since June 2004 in a bid to head off inflation concerns. Policy-makers meet again next week and are expected to boost benchmark interest rates again.

Sales of new single-family homes rose 2.1 per cent in September to a seasonally adjusted annual rate of 1.2 million units. But the sales pace for June, July and August were all revised lower, and September's rate came in below the 1.25 million unit pace expected by Wall Street economists.

The department said Hurricane Katrina had a minimal impact on new residential sales for September, which were 0.1 per cent slower than a year earlier.

While sales rose, the supply of homes available for sale shot up to a record 493,000 at the end of September and the median price fell 5.7 per cent to US$215,700 -- two signs of a possible cooling in the housing boom.

Low mortgage rates have sustained a long rally in the sector, but recent data have begun to suggest some slowdown. Earlier this week, a trade group said home resales came in flat in September but would have been lower if not for aggressive buying around hurricane-impacted areas.

Mortgage interest rates, too, have begun to climb after largely ignoring rising short-term borrowing costs. The rate on the 30-year mortgage loan, considered the industry benchmark, averaged 6.15 per cent in the week ending Thursday, according to mortgage finance company Freddie Mac.

The last time interest rates on 30-year mortgages were higher was during the week of July 1, 2004, when they averaged 6.21 per cent.

In its report on demand for long-lasting manufactured goods, the Commerce Department said transportation orders fell 4.7 per cent in September as civilian aircraft orders plummeted 41.6 per cent. But even stripping out the drop in demand for transportation goods, new orders fell 1 per cent.

The often-volatile report was weaker than Wall Street expected, but upward revisions to August tempered concerns. Economists had forecast orders for durable goods, which are meant to last three years or more, to fall just 1.1 per cent in September, with orders outside transportation up 0.8 per cent.

The durables report showed a 1.2 per cent decline in orders for non-defence capital goods, excluding aircraft, which economists view as an indicator of future business spending.

Shipments of durable goods edged up just 0.1 per cent. That was less than some had expected and could lead forecasters to reduce projections for overall economic growth.

The Labor Department said initial claims for state unemployment aid fell 28,000 to 328,000 last week from an upwardly revised 356,000 the prior week.

The department said some 24,000 claims reflected workers idled by the hurricanes, although that number, unlike the headline figures, was not adjusted for seasonal variations. That brought the unadjusted cumulative total of claims stemming from the storms, which slammed into the US Gulf coast in late August and September, to 502,000.

US Treasury prices rose on the weaker-than-expected durable goods and home sales data, while the dollar and Wall Street stocks fell, hit by news of a Securities and Exchange Commission probe of General Motors Corp's accounting.

- REUTERS