WASHINGTON -- Three negative reports on the economy released yesterday strengthened the view of many analysts that the economy will not stage a strong rebound after a very weak first quarter.
"It was disappointing all around," said Neal Soss, chief economist of First Boston Corp.
His comment came after the Commerce Department reported that single-family home sales plunged 21% in. May to a seasonally adjusted annual rate of 571,000 units, the lowest level in a year.
Essentially erasing a 21.5% gain in April, the May decline in home sales was the biggest monthly drop in more than 13 years. a department official said.
In addition, the Conference Board reported that its consumer confidence index dropped three points in June to 58.9, the lowest level in eight months. Economists had expected the index to gain a point or two.
"Consumers were both less positive in their assessment of prevailing economic conditions and less optimistic in their expectations for the immediate months ahead. Buying plans are also weaker." the New York-based business research group said in its monthly report.
The index is based on a monthly survey of a representative sample of 5,000 U.S. households. "The continued low level of consumer confidence suggests that the economy remains weak," said Fabian Linden, executive director of the nonprofit research group.
The Commerce Department also reported separately yesterday that the index of leading economic indicators posted its third decline in five months, dropping 0.3% in May after posting a 0.2% increase in April.
Of the three reports. economists were most concerned about the unexpectedly large drop in home sales. Analysts had expected a 8% to 10% drop in sales in May, correcting for an unsustainable surge in April. but nothing close to 21%.
Much of April's gain in sales was considered to be a carry-over from a weak March dominated by abnormally bad weather.
"With the lowest mortgage rates in decades, the housing market can't seem to muster any kind of a rebound," Soss said. In general, he said yesterday's reports will prompt him to considerably revise downward his 3.6% real growth estimate for the second quarter.
"The home sales report was interesting and disappointing." said Henry Willmore, an economist with Chase Manhattan Bank. He had expected a drop in May sales, but only to the 600,000 rate area.
Like other analysts, Willmore predicted that sales will rebound to a rate of about 650,000 in the coming months because the labor market is improving and mortgage rates are likely to remain low.
Willmore said yesterday's reports won't affect his forecast of 2% real growth in gross domestic product for the second quarter, which is less optimistic than many forecasts.
Likewise, Hugh Johnson, chief investment officer of First Albany Inc., said yesterday's reports won't change his expectations for the second quarter. However, he said they may prompt him to revise down his growth estimate for the year from 2.4% to 2.3%.
Johnson said the declines in confidence and leading indicators do not bode well for the second half of this year.
"Even though the second quarter is going to show some sort of bounce back from the first quarter, the third and fourth quarters are going to be on the soft side," Johnson said.
Nonetheless, Johnson predicted that home sales will improve in the coming months and post a modest year-over-year gain of about 4%, far less than last year's nearly 20% increase.
This year, new home sales are up 4.2% compared to the same period last year, the department reported.
Christine Chmura, chief economist of Crestar Bank in Virginia, was less fazed than other analysts by the huge drop in home sales. She said that home sales data are very volatile.
"Looking at one month's decline is fairly deceiving," Chmura said. Like Willmore, she expects sales to drift back up to around a 650,000 annual rate, which she said would be respectable given the modest economic growth and generally less demand for new homes due to an aging U.S. population.