US economy shows signs of stronger recovery

  • 26 February 2013
  • From the section Business
Construction workers pass bricks to each other in Phoenix, Arizona
Image caption New home sales have typically been a leading indicator of past US economic recoveries

The US has registered surprisingly strong economic data, suggesting the recovery may be gathering steam.

New home sales, a lead component of past recoveries, surged 16% in January to the highest rate since July 2008.

The Conference Board index of consumer attitudes rebounded to 69.6 in February - the highest since November - from an upwardly revised 58.6 in January.

It suggested Americans had recovered from the shock of a sharp rise in payroll taxes over the New Year.

Markets had been rattled a month ago by the size of the knock to consumer sentiment from the tax rise, which came as part of a deal between Democrats and Republicans to avert the much bigger round of automatic tax rises and spending cuts dubbed the fiscal cliff.

Another hangover from that deal is that some $85bn of spending cuts, or "sequesters", that had been due on 1 January have instead been delayed to the end of this week, with Congress currently trying to hammer out a deal to postpone the date even further.

Markets were buoyed by the US data, which were both well above expectations.

The Dow Jones Industrial Average recovered half a percent in morning trading, despite ongoing market jitters that Italy's indecisive election results may herald a new chapter in the eurozone's financial crisis.

The markets also took heart from a robust defence of the Federal Reserve's money-creating quantitative easing policy by its Chairman Ben Bernanke, giving testimony before Congress.

He also called on Congress to delay the sequesters, which he warned would help create a "significant headwind" for the US recovery.

New construction jobs

The jump in sales of newly-built homes is of particular note, as housing construction has typically played a lead role in past US economic recoveries.

But in this recession, the US housing construction industry - which largely collapsed between 2006 and 2010 - has failed until now to recover, in large part due the difficulty in obtaining a mortgage, and a glut of cheap repossessed homes dumped on the market by the banks.

However, this picture has steadily improved over recent months - the overhang of unsold properties has fallen to a 13-year low, while the average interest rate on new mortgages has fallen to an all-time low thanks to interventions by the US Federal Reserve.

House prices have also turned the corner.

Separate data released on Tuesday showed that the closely-watched Case Shiller index of home prices in 20 major US cities were 6.8% higher in the three months to December 2012 than they had been a year earlier.

The seasonally-adjusted percentage increase in new home sales registered in January was the biggest since 1993.

However, the market is recovering from historic lows, and the January figure is still about a third below the level of sales that was typical during the 1970s, 80s and 90s, before last decade's housing bubble.

The number of permits issued for the construction of new homes has hit a four-and-a-half-year high. Each new home creates three construction jobs for a year on average. The construction industry has added a total of 98,000 jobs since September.

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