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Sales of new homes slide

February 28, 2008|Doug Palmer | Reuters

WASHINGTON — New U.S. single-family home sales slumped to a 13-year low in January and demand for durable goods declined more than expected, government data showed Wednesday, fueling fears of a recession.

The reports bolstered expectations of more interest rate cuts when the Federal Reserve's policy-setting committee meets next month.

New single-family home sales fell 2.8% in January to the lowest rate since February 1995, while the median sales price slipped, according to the Commerce Department.

New home sales fell to an annual rate of 588,000 from an upwardly revised rate of 605,000 in December. Economists expected a 600,000 rate, according to Reuters survey.

In a separate report, the Commerce Department said new orders for durable U.S.-made manufactured goods fell 5.3%, the biggest drop in five months and more than analysts had expected. A key gauge of business spending also declined, though the 1.4% drop was less than the 2% decrease that Wall Street analysts had forecast.

"The data suggest that capital spending is stalling, and possibly receding, in the first quarter as weak domestic demand starts to overshadow still-healthy foreign sales," said Sal Guatieri at BMO Capital Markets. "Businesses cut payrolls at the start of the year, so it's unlikely that they boosted capital spending, especially with the economic climate souring by the day," he said.

Still, some economists took solace in the fact that shipments rose, perhaps a sign of continued strength in the U.S. export sector, which has benefited from a weak dollar. That should buffer the U.S. economy, even as domestic demand ebbs.

"The U.S. economy has entered a period of very sluggish growth," said Harm Bandholz, economist at UniCredit in New York. "A weaker profit outlook and tighter access to credit will dampen business fixed investment throughout the entire year. But we still do not think that the U.S. economy will fall into an outright recession."

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