Service industries in U.S. expanded at a faster pace in May

Housing Market

At the same time, further improvement in the housing industry is helping lift retailers such as Atlanta-based Home Depot, which last month posted first-quarter profit that topped analysts’ estimates and raised its forecast for earnings this year on gains in renovation spending.

“With the housing market there are a lot of positives,” including property values, turnover, household formation and affordability, Francis Blake, chairman and chief executive officer of the largest home-improvement retailer, said at a May 29 conference. “Credit availability is still a major issue and what we’d hope is that over the next half a year, year or so, that that starts to improve and provide some further legs to the housing market recovery.”

The S&P/Case-Shiller index of property values increased 10.9% from March 2012, the biggest 12-month gain since April 2006, after advancing 9.4% in February, a report showed last week.

Home Sales

Purchases of previously owned homes also climbed in April, rising to a 4.97 million pace and the highest level in more than three years, according to the National Association of Realtors.

Borrowing costs are rising from record lows. The average rate on a 30-year fixed mortgage was 3.81% in the week ended May 30 after the biggest jump since February 2011, according to data from Freddie Mac. The rate reached a record low of 3.31% in November in figures dating to 1972.

Uneven improvement in the economy has made it difficult to project when the Federal Reserve may make changes to its unprecedented accommodation program. Chairman Ben S. Bernanke said in a response to questions during congressional testimony on May 22 that the central bank could consider reducing the amount of its monthly purchases of Treasuries and mortgage debt within “the next few meetings” if officials see signs of sustained improvement in the labor market.

FOMC Meeting

The policy-setting Federal Open Market Committee said May 1 that it will keep buying $85 billion a month in bonds to bolster growth and cut unemployment. The central bank also pledged to keep interest rates near zero as long as joblessness is above 6.5 percent and inflation is no more than 2.5 percent.

The unemployment rate was 7.5 percent in April and is forecast to remain at that level when the Labor Department releases figures June 7. The median estimate of economists in the Bloomberg survey projects payrolls increased by 167,000 workers in May compared with the 165,000 gain reported for the previous month. Employment rose an average 207,000 over the six months ended in March.

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