US new home sales in surprise fall

The decline in sales is extremely disheartening - said analysts at Briefing in a client note.

US new home sales fell unexpectedly in September after five consecutive monthly increases, government data showed Wednesday, adding to concerns over the pace of economic recovery.

The Commerce Department said sales of new single-family homes dropped at a seasonally adjusted annual rate of 402,000 or by 3.6 percent last month from a revised 417,000 in August.

The department also revised lower the figures for June, July and August.

The September data was far below the market forecast of a 5.5 percent jump to 440,000 homes as analysts had expected builders would benefit from a federal tax credit for first-time homebuyers that expires at the end of next month.

- The decline in sales is extremely disheartening - said analysts at Briefing in a client note.

- The first-time homebuyer tax credit was expected to push up sales for homes through the end of November. We've seen the effects of the tax credit as existing home sales have surged - they said

The credit facility, limited to buyers who have not owned a home for the past three years, is scheduled to expire November 30 but some lawmakers are pushing to extend it in a bid to fuel the country's recovery from recession since December 2007.

The surprise drop in new home sales reflects the sluggish recovery of the housing sector, at the epicenter of the global financial crisis that slammed the brakes on US growth following a mortgage meltdown.

The government is due to release on Thursday its first estimate of third-quarter gross domestic product, or the output of goods and services in the world's largest economy.

Most analysts say GDP will see an average 3.2 percent expansion, the first growth rate for the United States after a year of quarterly contractions that arose after surging home mortgage defaults triggered financial crisis.

The growth could come on the back of stepped-up home construction, consumer spending and business equipment investment but that pace of expansion may not be sustainable as stimulus efforts ease, analysts said.

The - main concern, naturally, is about the sustainability of the US recovery - said Ed Yardeni, chief investment strategist of Yardeni Research.

- A frequent question is - What happens when your fiscal stimulus wears off? -

Earnings of most listed US companies have been better than expected but this may not immediately translate to economic dynamism.

- This should result in a V-shaped recovery in earnings, though probably not in real GDP during the first half of 2010 - Yardeni said.

A key component of US economic expansion is consumer spending but if data this week is anything to go by, the growth driver is still sluggish.

The Conference Board, a private research firm, said Tuesday that its consumer confidence index declined for the second month in a row, to 47.7 in October from a revised 53.4 in September -- much steeper than expected by Wall Street.

Confidence slumped largely due to worries about rising unemployment.

The unemployment rate jumped to a new 26-year high of 9.8 percent in September, with job losses accelerating to 263,000 that month.

Since the start of the recession nearly two years ago, the number of unemployed has increased by 7.6 million to 15.1 million.