Service industries in U.S. expand at fastest pace in a year

Home Sales

Low borrowing costs and stronger property values are supporting demand in the housing market, which is contributing to the expansion.

Purchases of new homes, logged when contracts are signed, jumped in January to a 437,000 annual pace, the strongest since 2008, the Commerce Department reported. Sales of previously- owned houses climbed to a 4.92 million annual rate in January, and the number of available properties slumped to 1.74 million, the lowest level since 1999, the National Association of Realtors said.

Homebuilders such as Hovnanian Enterprises of Red Bank, New Jersey, are projecting further gains for the industry this year.

“Population is up, sentiment about buying homes is up, households are unbundling, creating demand for housing,” Larry Sorsby, executive vice president and chief financial officer, said at a Feb. 26 conference. “Consumer confidence is rising, rents are rising. So people are more anxious to buy today than they were a year ago and we think that trend is going to continue.”

Employment Growth

Sustained hiring is also supporting growth. Employers added 157,000 workers in January after a revised 196,000 rise the prior month and a 247,000 surge in November, according to Labor Department data. Revisions added a total of 127,000 jobs in the last two months of 2012. About 160,000 jobs were created in February, according to the Bloomberg survey median before a March 8 report.

Still, higher taxes are crimping consumers’ take-home pay. As part of its budget agreement on Jan. 1, Congress agreed to let the tax used to pay for Social Security benefits return to its 2010 level of 6.2% from 4.2%. That reduces the paycheck for someone who earning $50,000 a year by about $83 a month.

Incomes slumped 3.6% in January, the biggest drop in 20 years, as consumers weathered the higher levy by putting less money in the bank, Commerce Department data showed last week.

Federal Reserve

Federal Reserve Chairman Ben S. Bernanke has said that while the expansion is gaining traction, the need for a stronger economic recovery outweighs the potential costs in financial markets of continuing unprecedented monetary easing.

“Available information suggests that economic growth has picked up again this year,” Bernanke said last week in testimony to the Senate Banking Committee in Washington.

Still, Bernanke cited an estimate from the nonpartisan Congressional Budget Office that the spending cuts known as sequestration will cause a 0.6 percentage-point reduction in growth this year.

“Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant,” he said.

Bloomberg News

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