WRAPUP 6-US July new home sales sag, durables orders soft

* New home sales rate of 276,000 slowest on record in July

* Housing decline fuels fears of renewed downturn

* Durables orders up 0.3 pct, ex-transport down 3.8 pct

* Obama holds call with top aides about grim data
(Adds Deutsche Bank cutting U.S. growth outlook)

By Lucia Mutikani

WASHINGTON, Aug 25 (BestGrowthStock) – New U.S. home sales slumped
to the slowest pace on record in July and orders for costly
durable goods were weak, heightening fears the economy was at
risk of another downturn.

The reports on Wednesday from the Commerce Department
suggested growth could slow materially without government
support and some economists saw the risk of a contraction in
output in the third quarter.

“If you don’t get a pick-up in the next couple of months,
it sure looks like it’s possible the economy could contract in
the third quarter,” said Keith Hembre, chief economist at First
American Funds in Minneapolis, Minnesota.

The unrelenting flood of negative economic data is also bad
news for the Obama administration, only months ahead of
congressional elections in November, when Democrats risk losing
a substantial number of seats due to voters’ fears over the
economy and anger over high unemployment.

So far, most economists are not predicting a double-dip
recession, though they caution that weak growth will persist
into next year.

Deutsche Bank cut its outlook for third-quarter growth
after the data on durable goods, which it called “exceptionally
weak,” in a research note. The bank said it now sees real
growth in gross domestic product to 2.0 percent in the third
quarter, down from a prior forecast of 3.0 percent.

In a sign of the White House’s level of worry, a
vacationing President Barack Obama held a conference call with
top advisers, including Treasury Secretary Timothy Geithner and
National Economic Council Director Larry Summers, about the
recent soft data.

“The economic team provided an update on the next steps to
keep the economy growing, including assistance to small
businesses and the extension of tax cuts to the middle class,”
the White House said in a statement. Obama is vacationing on
the Massachusetts island of Martha’s Vineyard.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on new home sales: http://link.reuters.com/gyq27n Graphic on U.S. housing market: boom and bust: http://link.reuters.com/nut27n Graphic on durable goods: http://link.reuters.com/zak27n Graphic on mortgage refinancing: http://link.reuters.com/nyw86n Insider show with David Rosenberg, chief chief economist at Gluskin-Sheff: http://link.reuters.com/jyv86n ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Single-family home sales plummeted 12.4 percent last month
to a 276,000-unit annual rate, the lowest since the series
started in 1963, the Commerce Department said. June’s sales
pace was revised down to 315,000 units. Markets had expected a
330,000 unit rate in July.

In a separate report, the department said new orders for
long-lasting manufactured goods excluding transportation
equipment posted their largest decline in 1-1/2 years in July
while overall bookings rose far less than expected.

Stocks on Wall Street initially fell on the bearish data
but rebounded to end slightly higher and snap a four-day losing
streak as bargain-hunters inched back into the market. U.S.
government debt prices fell, but an earlier rally narrowed the
yield curve — reflecting the difference between long – and
short-term interest rates — to its flattest in 16 months.

Meanwhile, mounting speculation in the foreign exchange
markets of intervention by Japanese authorities helped to pull
the dollar off a 15-year low against the yen.

FADING GOVERNMENT STIMULUS

The economic recovery from the longest and deepest
recession since the Great Depression is losing steam after
brisk fourth and first quarters fueled by government stimulus
and sturdy business investment.

Much of the stimulus has already been spent and there is
little political appetite to inject more government money to
support the faltering recovery amid a swelling budget deficit.

Some analysts see the possibility that Democrats will lose
control of the U.S. House of Representatives, which would
complicate administration efforts to press ahead with
reforms to fight climate change and other initiatives.

A Reuters/Ipsos poll on Tuesday showed Obama’s approval
rating at 45 percent, overtaken for the first time by a 52
percent disapproval rating.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on Reuters/Ipsos poll: http://link.reuters.com/qep86n ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The housing market, the key trigger of the recession, has
suffered the most from the end of government support. The April
expiry of a popular tax credit for home buyers has depressed
sales and building activity.

“What we are seeing is the downside of government
intervention. It had fanned expectations of a market bottom
when in fact, it created a false bottom,” said Tom Porcelli, a
senior economist at RBC Capital Markets in New York.

Data on Tuesday showed sales of previously owned homes
dropped in July to their slowest pace in 15 years. The weak
pace resulted in the supply of new homes available for sale
spiking to 9.1 months’ worth from 8.0 months’ worth in June.

The median sale price for a new home fell last month from
June to its lowest since December 2003. A price gauge for new
and existing single-family homes fell for the first time in
four months in June, a government agency said. [ID:nN25126242]

HIGH UNEMPLOYMENT

An unemployment rate of 9.5 percent is also depressing
housing activity. Mortgage purchase applications rose only 0.6
percent last week, even as 30-year loan rates fell to 4.55
percent, the Mortgage Bankers Association said in a report.

Although luxury home-builder Toll Brothers Inc (TOL.N: )
reported its first quarterly profit in three years, it said
orders fell 16 percent. [ID:nSGE67O0GI]

In the durable orders report, overall bookings rose 0.3
percent, far less than the 2.8 percent increase markets had
expected. Last month’s moderate increase was the latest
indication the sector that has been the main driver of the
recovery is losing momentum.

Even more concerning, non-defense capital goods orders
excluding aircraft — a closely watched proxy for business
spending — slid 8 percent last month after a 3.6 percent
increase in June.

“The strength of second-quarter GDP was business spending.
It looks like businesses are pulling back from this commitment
in a very big way in July. It’s an indication of how sentiment
is deteriorating,” said Christopher Low, chief economist at FTN
Financial in New York.

Durable goods inventories rose for a seventh straight month
and shipments, which figure in the calculation of gross
domestic product, rose 2.2 percent last month after June’s 0.2
percent gain. Unfilled orders slipped 0.1 percent after rising
for three straight months.
(Editing by Dan Grebler and Leslie Adler)

WRAPUP 6-US July new home sales sag, durables orders soft