YOU ARE HERE: LAT HomeCollections

New Home Sales Climb 9.2% in West : Housing: Figure is in stark contrast to May's 21% plunge nationwide. Other economic indicators also drop sharply.


New home sales nationwide plunged 21% in May but rose a surprising 9.2% in the West, the government said Tuesday, raising hopes in California that its battered housing market is finally on a slow road to recovery.

The housing report came as two other national surveys showed that Americans are still worried about the future of the economy and the higher taxes in President Clinton's proposed economic plan now going through Congress.

The government's index of leading economic indicators fell in May and the Conference Board's index of consumer confidence dropped to its lowest level since October.

In the sharpest monthly drop in 13 years, new homes nationwide sold at a seasonally adjusted annual rate of 571,000 in May, down from April's rate of 723,000, the Commerce Department said. The plunge erased a sharp gain in the previous month and pushed sales down to their lowest levels in a year.

But sales jumped in the West to a 213,000 rate. It was the third straight rise for the region, where about half of the sales are dependent on the huge California market.

"The builders out West might be happy, but the rest of the picture is pretty bleak," said David Resler, chief economist at Nomura Securities International Inc. in New York. "The economy is running out of excuses for why it isn't doing better."

Michael Carliner, an economist with the National Assn. of Home Builders in Washington, said Western states have more room to bounce back because they have suffered more in recent years.

"Three straight months of higher sales is good," Carliner said, "but I wouldn't break out the champagne and start celebrating until I saw California's economy show some real signs of improvement."

Despite Carliner's cautious outlook, some Southern California builders are already hiring again or plan to start adding employees soon.

Los Angeles-based Kaufman & Broad Home Corp., one of the state's biggest builders, has added about 125 people to its payroll over the last few months and expects to hire even more workers if its sales continue to rise.

Whitehawk Partnership, a small builder headquartered in Pasadena, will create dozens of jobs for carpenters and hire back many of the 15 front-office workers laid off last year when it resumes construction at a 276-unit development in Palm Desert in a few weeks.

And 60 full-time construction jobs were created earlier this month when Paragon Homes of Santa Monica finally broke ground on a 55-home subdivision in Victorville. The project had languished for nine months while Paragon waited for signs that the market was turning around.

"We can finally see the light at the end of the tunnel," Paragon Vice President Brian Catalde said.

Still, some analysts wonder whether companies such as Paragon are being too optimistic.

The Commerce Department said its index of leading economic indicators fell 0.3% in May, wiping out its revised 0.2% rise in April. The index--which measures a basket of economic indicators, from state unemployment benefits to permits for future construction projects--is designed to predict future movements in the economy.

Six of the index's 11 components fell last month, led by declines in consumer expectations and order backlogs for big-ticket items such as cars and appliances.

Four components, including building permits and spending for new plants and equipment, moved higher. One indicator, the average length of the workweek, was unchanged.

"The economy is very, very, very sluggish," said Astrid Adolfson, an economist at MCM Moneywatch, an economic research firm in New York. "The consumer is not so sure he wants to buy everything in sight."

Until recently, Adolfson, Nomura Securities' economist Resler and many other analysts had predicted that lower interest rates and a stabilizing job market would encourage consumers to spend more and rekindle business for retailers and manufacturers.

But with most Americans still unwilling to loosen their purse strings, Resler said he is cutting Nomura's forecast for economic growth this year to a meager 2%--a full percentage point off his original projection.

Those sentiments were reinforced by the Conference Board's monthly consumer confidence index, which the business-research group said fell from 61.9 in May to 58.9 in June.

The number of people who think the job market will worsen over the next six months outnumber optimists by a 2-1 margin, the board said, while people who rate the current economy "bad" outnumber the people who call it "good" by 3 to 1.

Analysts said consumers are particularly wary about the potential impact of Clinton's economic plan, especially the higher tax rates that are being proposed to cut the deficit and fund health care reform.

"The tax increases--both actual and threatened--have increasingly depressed both confidence and spending," said David Jones, an analyst with New York securities dealer Aubrey G. Lanston & Co. "Washington has to wake up and clear up these uncertainties."

But Clinton said the housing and other reports released Tuesday underscore the severity of the short-term problems facing the economy.

New Home Sales

Seasonally adjusted annual rate, in thousands of units: May, '93: 571 Apr., '93: 723 May, '92: 552

Source: Department of Commerce

Los Angeles Times Articles