Encouraging Signs Seen in Housing

NEW YORK, NY - Increases in housing-market activity and construction spending were the latest signs of a brighter outlook for the U.S. economy. Pending sales of existing homes rose in March for the second-straight month, the National Association of Realtors said Monday.

It marked the first back-to-back gains in that index in nearly a year, and the latest hopeful sign for the beleaguered housing market. Pending sales serve as a leading gauge, as they are based on contracts signed but not yet closed, a process that typically takes a month or two.

Activity was strongest in the South and West in March, the Realtors' group said, as the index overall increased 3.2 points from February to a level of 84.6. Sales of new and existing homes have fallen sharply in the past year, but have shown signs of life in recent months as falling prices and low mortgage rates help to make homes more affordable.

Meanwhile, the Commerce Department said Monday that spending on construction projects rose in March by 0.3% to $969 billion, the first gain in six months. Spending was down on residential construction but strong for nonresidential projects, particularly power plants and government structures, possibly reflecting a jump-start from the onset of the government's distribution of $787 billion of stimulus funds.

While both reports are encouraging, plenty of clouds remain on the horizon - rising unemployment, in particular. The nation's 8.5% jobless rate is expected to jump toward 9% when April figures are released Friday by the Labor Department, and to flirt with double digits as layoffs continue to mount.

Nomura Securities chief economist David Resler wrote in a note to clients about construction spending: "We [still] expect that these expenditures will remain under considerable pressure this year due to rising vacancies and difficult financing conditions."

But the increase does suggest that the economy contracted at a slower rate than initially reported during the January-March period. The government last week reported that the economy contracted at a 6.1% annual rate in the first quarter. Morgan Stanley economists said they expect that figure will be revised upward to a drop of 5.9%, and also raised their forecast for the current quarter to a drop of 3.3% from the 3.5% projected prior to Monday's reports.