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Economic Indicators

U.S. new home sales rebound in May; consumer sentiment at record low

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© Reuters. FILE PHOTO: Carpenters work on building new townhomes that are still under construction while building material supplies are in high demand in Tampa, Florida, U.S., May 5, 2021. REUTERS/Octavio Jones/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – Sales of new U.S. single-family homes unexpectedly rose in May, but the rebound is likely to be temporary as home prices continue to increase and the average contract rate on a 30-year fixed-rate mortgage approaches 6%, reducing affordability.

While the report from the Commerce Department on Friday also showed new home supply hitting a 14-year high last month, overall housing inventory remains significantly low. The rise in sales after four straight monthly declines, likely reflected buyers rushing to lock in mortgage rates in anticipation of further increases. A survey this month suggested homebuilders expected weaker sales in June.

“We suspect May’s surprisingly strong new home sales will prove to be the last hurrah for new home sales this year,” said Mark Vitner, senior economist at Wells Fargo (NYSE:WFC) in Charlotte, North Carolina.

New home sales jumped 10.7% to a seasonally adjusted annual rate of 696,000 units last month. April’s sales pace was revised higher to 629,000 units from the previously reported 591,000 units. Sales surged in the West and the densely populated South, but declined in the Midwest and Northeast.

Economists polled by Reuters had forecast that new home sales, which account for 11.4% of U.S. home sales, would fall to a rate of 588,000 units. Sales dropped 5.9% on a year-on-year basis in May. They peaked at a rate of 993,000 units in January 2021, which was the highest level since the end of 2006.

The average contract rate on a 30-year fixed-rate mortgage increased this week to more than a 13-1/2-year high of 5.81%, from 5.78% last week, according to data from mortgage finance agency Freddie Mac (OTC:FMCC). The rate has risen more than 250 basis points since January, amid a surge in inflation expectations and the Federal Reserve’s aggressive interest rate hikes.

There was, however, some encouraging news on the inflation front. While a survey from the University of Michigan on Friday confirmed consumer confidence plunged to a record low in June, consumers’ inflation expectations moderated a bit.

The University of Michigan said its final consumer sentiment index fell to 50.0 from a preliminary reading of 50.2 earlier this month. It was down from 55.2 in May.

The survey’s one-year inflation expectation was unchanged from May at 5.3%, but ticked down from a preliminary June reading of 5.4%. The five-year inflation outlook edged up to 3.1% from 3.0% in May, but was down from 3.3% earlier in June.

The increase in the preliminary inflation expectations and jump in annual consumer prices were behind the Fed’s decision last week to raise its policy rate by three-quarters of a percentage point, its biggest hike since 1994.

“Fed officials will breathe a sigh of relief,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “There is nothing in today’s data to change market expectations for another 75-basis-points rate hike in July.”

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury yields rose.

HOUSING COOLING

Data this week showed sales of previously owned homes fell to a two-year low in May. Housing starts and building permits also declined last month, though they remained at high levels. But cooling demand could help to bring housing supply and demand back into alignment and slow price growth.

The median new house price in May accelerated 15.0% from a year ago to $449,000. There were 444,000 new homes on the market at the end of last month, the highest number since May 2008 and up from 437,000 units in April.

Houses under construction made up roughly 65.8% of the inventory, with homes yet to be built accounting for about 25.9%. At May’s sales pace it would take 7.7 months to clear the supply of houses on the market, down from 8.3 months in April.

“Going forward, we expect homebuilders to be willing to offer more incentives and discounts to support sales in a rising mortgage rate environment,” said Doug Duncan, chief economist at mortgage finance agency Fannie Mae.

Economic Indicators

Italy says can exceed 3.1% growth target for 2022 despite energy prices

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© Reuters. FILE PHOTO: People walk along the Galleria Vittorio Emanuele II shopping mall in Milan, August 25, 2015. REUTERS/Flavio Lo Scalzo

ROME (Reuters) – Italy’s Treasury said the country’s economy could grow this year by at least as much as Rome’s official target of 3.1% set in April, despite the negative impact of surging energy prices.

Italy grew 0.1% in the first quarter from the previous three months, national statistics bureau ISTAT said last month, revising up a preliminary estimate of a 0.2% contraction.

This left Italy with so-called “carryover” growth of 2.6% this year, assuming gross domestic product was flat in the remaining three quarters, ISTAT said.

Announcing on Monday the bond issuance programme for the third quarter, the Treasury said it expected growth to accelerate in the second quarter, compared with the first three months.

This still makes it plausible to reach or exceed the 2022 growth target of 3.1%, it said in its debt issuance report.

Prime Minister Mario Draghi’s government in April revised down its 2022 economic growth forecast to 3.1% from a 4.7% projection made last September.

The government has budgeted since January more than 33 billion euros ($34.90 billion) to soften the impact of sky-high electricity, gas and petrol costs.

($1 = 0.9456 euros)

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Economic Indicators

French consumer confidence falls more than expected in June

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© Reuters. A woman shops at a fruit and vegetables shop in Paris, France, June 10, 2022. REUTERS/Sarah Meyssonnier

PARIS (Reuters) – French consumer confidence fell more than expected in June, hitting a near nine-year low as concerns about the economic outlook surged in the face of high inflation and political uncertainty, a survey showed on Tuesday.

The INSEE official statistics agency said its consumer confidence index fell to 82 in June from 85 in May and the lowest level since July 2013.

A Reuters poll of 14 economists had an average forecast of 84 with the lowest estimate for 83.

Although households’ concerns about future inflation remained well above the long-term average, they eased in June for the third month in a row.

However, household sentiment about the general economic outlook continued to worsen, falling to the lowest level since May 2020 when France was in the second month of its first and most strict COVID-19 lockdown.

While surging inflation has stressed households in recent months, France’s political situation has added to uncertainty about the economic outlook since President Emmanuel Macron’s party lost its ruling majority in legislative elections this month.

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Economic Indicators

Peru truckers, farmers to strike over fuel and fertilizer costs

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© Reuters. FILE PHOTO: People walk next to parked trucks during a national transportation strike against fuel prices, in Lima, Peru March 18, 2021. REUTERS/Angela Ponce/File Photo

By Marco Aquino

LIMA (Reuters) – Peru’s truckers and some farm groups will go on strike on Monday after failing to reach agreements with the government seeking measures to reduce the impact of steep global price rises of fuel and fertilizer, sector leaders said on Sunday.

Union leaders met on Friday and Saturday with government representatives, with demands including considering freight transport a “public service” that would reduce costs and curb competition from truckers from neighbor countries.

“We are firm in plans to strike with all our bases nationwide,” the leader of the heavy load haulage and drivers union Marlon Milla told radio station RPP. The union has 400,000 cargo transport units in 14 of the 25 regions of the country.

High global fuel prices linked to Russia’s invasion of Ukraine have stoked unrest in Peru, the world’s No. 2 copper producer, while shortages of fertilizer have raised fears over food supply with the government struggling to secure shipments.

The government of leftist President Pedro Castillo, who has seen his popularity tumble since taking office last year, has taken measures to curb the rising cost of living, but the annual inflation rate remains at around 8%, its highest level in 24 years.

Some farming unions also announced strikes on Monday, in protest at the rise in fertilizer prices and shortages.

Latin American leaders are grappling to bring down spiraling prices despite major interest rate hikes. Trucking protests over fuel costs have hit Argentina while Ecuador is being roiled by protests in part linked to gas prices. [L4N2YB27W]

“The dialogue has not been exhausted, we are in a permanent session of ministers to avoid protest,” Justice Minister Félix Chero told reporters on Sunday. The government is offering subsidies for road tolls and fertilizer costs.

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