Tag Archives: Economy

U.S. job growth slows sharply, unemployment rate falls to 4.5 percent

A fast food restaurant advertises for workers on its front window in Encinitas, California, U.S., September 13, 2016. REUTERS/Mike Blake/File Photo

By Lucia Mutikani

WASHINGTON, (Reuters) – U.S. employers added the fewest number of workers in 10 months in March, but a drop in the unemployment rate to a near 10-year low of 4.5 percent pointed to a labor market that continues to tighten.

Nonfarm payrolls increased by 98,000 jobs last month as the retail sector shed employment for a second straight month, the Labor Department said on Friday, the fewest since last May.

The economy enjoyed job gains in excess of 200,000 in January and February as unusually warm temperatures pulled forward hiring in weather-sensitive sectors like construction, leisure and hospitality. In March, temperatures dropped and a storm lashed the Northeast.

The unemployment rate fell two-tenths of a percentage point to 4.5 percent, the lowest level since May 2007.

Economists polled by Reuters had forecast payrolls increasing 180,000 last month and the unemployment rate unchanged at 4.7 percent.

The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population. The labor market is expected to hit full employment this year, which could

drive faster wage growth.

The weak payrolls gain could raise concerns about the economy’s health especially given signs that gross domestic product slowed to around a 1.0 percent annualized growth pace in the first quarter after rising at a 2.1 percent rate in the fourth quarter.

Average hourly earnings increased 5 cents or 0.2 percent in March, which lowered the year-on-year increase to 2.7 percent.

Given rising inflation, the moderate job gains and gradual wage increases could still keep the Federal Reserve on course to raise interest rates again in June.

The U.S. central bank lifted its overnight interest rate by a quarter of a percentage point in March and has forecast two more hikes this year. The Fed has said it would look at how to reduce its portfolio of bond holdings later this year.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, held at an 11-month high of 63 percent in March.

Economists attribute some of the improvement in the participation rate to President Donald Trump’s electoral victory last November, which might have caused some unemployed Americans to believe their job prospects would improve. Trump has pledged to pursue pro-growth policies such as tax cuts and deregulation.

Construction jobs increased 6,000 after robust gains in January and February. Manufacturing employment gained 11,000 jobs as rising oil prices fuel demand for machinery.

Retail payrolls fell 29,700, declining for a second straight month. Retailers including J.C. Penney Co Inc and Macy’s Inc have announced thousands of layoffs as they shift toward online sales and scale back on brick-and-mortar operations.

Government payrolls increased 9,000 despite a freeze on the hiring of civilian workers.

((Reporting by Lucia Mutikani; Editing by Andrea Ricci))

Stocks skid, safe-haven assets jump as U.S. missiles strike Syria

A woman monitors stock market prices inside a brokerage in New Taipei city, Taiwan

By Wayne Cole

SYDNEY (Reuters) – Safe-haven bonds and the yen jumped in Asia on Friday, while stocks fell after the United States launched cruise missiles against an air base in Syria, raising the risk of confrontation with Syrian backers Russia and Iran.

The U.S. dollar dropped three-quarters of a yen in currency markets, while sovereign bonds, gold and oil prices rallied hard.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.7 percent in short order, and S&P 500 futures lost 0.5 percent in an unusually sharp move for Asian hours. Japan’s Nikkei was stripped of its early gains to slip 0.1 percent.

U.S. President Donald Trump ordered the strikes against a Syrian air base controlled by President Bashar al-Assad’s forces in response to a deadly chemical attack in a rebel-held area, a U.S. official said.

Facing his biggest foreign policy crisis since taking office in January, Trump took the toughest direct U.S. action yet in Syria’s six-year-old civil war.

Investors had already been on edge as Trump met Chinese leader Xi Jinping for talks over flashpoints such as North Korea and China’s huge trade surplus with the United States.

“While President Trump had flagged a response to this week’s chemical attack in Syria, the swiftness of the response and the willingness to take action halfway through the Trump-Xi meeting caught markets a little off-guard,” said Sean Callow, senior currency strategist at Westpac in Sydney.

“There should be limited market follow-through, however, with no indication at this stage that this is the start of a broad-based, sustained U.S. military campaign.”

It was not yet clear if this strike would be the only one, though Secretary of State Rex Tillerson did say the attack was  “proportionate”.

The yen, a favored haven in times of stress due to Japan’s position as the world’s largest creditor nation, climbed across the board. The dollar fell to 110.30 from 110.95 just before news of the attacks hit dealing screens.

The dollar was otherwise unscathed, however, as it benefited from flows into safe-haven U.S. Treasuries. Against a basket of currencies it was barely lower, while the euro held steady at $1.0649.

Yields on 10-year Treasury debt fell five basis points to 2.29 percent, breaking a significant chart barrier at 2.30 percent for the first time this year.

Spot gold prices jumped 1.2 percent to $1,266.01 an ounce and touched their highest since Nov. 10.

“Clearly this raises the stakes, and we expect to see gold prices continuing to push higher in the short term, at least until there is some clarity around whether this is a one-off or develops into something more,” ANZ analyst Daniel Hynes said.

Oil also caught a bid on concerns the military intervention could affect supplies from the Middle East.

U.S. crude jumped 93 cents to $52.63 a barrel, the highest in a month, while Brent added 90 cents to $55.79.

(Reporting by Nichola Saminather; Additional reporting by Herbert Lash; Editing by Shri Navaratnam and Will Waterman)

Brazil may widen 2018 deficit goal as recovery disappoints: sources

Brazil's President Michel Temer listens to questions from the media during LAAD, the biggest military industry expo in Latin America in Rio de Janeiro, Brazil, April 4, 2017. REUTERS/Pilar Olivares

By Alonso Soto and Marcela Ayres

BRASILIA (Reuters) – Brazil’s government could widen its fiscal deficit target for 2018 as revenue collection remains weak given the slow pace of economic recovery, two officials involved in the policy discussion said on Wednesday.

It was the first time members of Brazil’s economic team have acknowledged a possible change to the primary deficit goal of 79 billion reais ($25.54 billion) for next year, amid efforts by the administration to rebalance its accounts after nearly three years of recession.

“We are keeping 79 billion but with the tendency to revise it,” said one of the officials, who asked for anonymity because he is not allowed to speak publicly. “We will need to seek extraordinary revenues in 2018.”

The market is forecasting a deficit of 118.3 billion reais next year, according to estimates collected by the finance ministry.

President Michel Temer was forced to cancel payroll tax breaks for 50 sectors and freeze 42 billion reais in budget spending to meet this year’s deficit goal of 139 billion reais.

A painfully slow recovery from the country’s deepest recession ever has undermined tax collection and called into question Temer’s capacity to significantly reduce a deficit that cost Brazil its investment grade rating.

The official said the government has ruled out tax increases to meet this or next year’s goals, but stressed authorities will have to seek one-off revenues such as concession fees and the sale of state assets.

To meet this year’s budget, the government considered increasing the Pis/Cofins federal taxes on gasoline, but political pressure forced Temer to backtrack.

With elections looming in 2018 and a sweeping corruption investigation ensnaring dozens of politicians, Temer’s allies in Congress are calling for more action to revive the economy.

A slew of negative data in January raised concerns, but the government still believes the economy will return to positive territory in the first quarter, the official said.

To alleviate its finances this year the government aims to collect more than 10 billion reais in revenues from a program to give amnesty to Brazilians who pay taxes and fines on undeclared assets held abroad, the official said.

The government has until April 15 to deliver its 2018 budget guidelines officially setting its primary deficit goal for next year.

($1 = 3.0928 reais)

(Reporting by Alonso Soto; Editing by Meredith Mazzilli)

Venezuela’s opposition censures judges; 18 held after protests

Demonstrators scuffle with security forces during an opposition rally in Caracas, Venezuela. REUTERS/Carlos Garcia Rawlins

By Andrew Cawthorne and Corina Pons

CARACAS (Reuters) – Venezuela’s opposition lawmakers, some carrying injuries from this week’s protests, on Wednesday sought the dismissal of Supreme Court judges whom they accuse of propping up a socialist dictatorship.

Newly militant opposition leaders also announced another round of demonstrations against President Nicolas Maduro for Thursday, despite chaos and violence in Caracas on Tuesday that left 20 injured and 18 arrested.

The opposition, which won control of the National Assembly in late 2015, accuses Maduro of wrecking the South American nation’s economy and squashing democracy.

Maduro says his foes are seeking a coup with the help of Washington and compliant foreign media.

The opposition’s main demand now is to bring forward the next presidential election scheduled for the end of 2018.

But there is no sign authorities will concede, analysts and diplomats say, unless foreign pressure ramps up considerably or Venezuela’s powerful military sways the equation.

The political drama is playing out against the backdrop of a deep economic crisis, with Venezuelans suffering a fourth year of recession, widespread shortages of basic foods and medicines, the world’s worst inflation, and long lines at supermarkets.

Having been impeded from reaching the National Assembly on Tuesday, lawmakers headed to the building in downtown Caracas from dawn on Wednesday, some still nursing head wounds or bandaged arms from clashes in recent days.

“We are going to keep fighting for change, opposing repression and dictatorship,” lawmaker Juan Requesens, who had a gash on his head, said at 6:30 a.m. while en route to the session.

Often at the forefront of provocative demonstrations, Requesens received more than 50 stitches after being hit by a stone when pro-government supporters confronted protesters at the public ombudsman’s office earlier this week.

ARRESTS AND INJURIES

The Caracas-based Penal Forum rights group said 18 people were still behind bars on Wednesday after detentions around the country, but mostly in Caracas. At least 20 people were injured on Tuesday, its head, Alfredo Romero, told Reuters.

There was particular outcry over a musician caught and slapped by police with riot shields while apparently on his way to practice, according to a video of the incident. State ombudsman Tarek Saab called for a probe into the “brutal aggression.”

The head of the hemispheric Organization of American States and global rights group Amnesty International both condemned Venezuela for excessive repression.

But Interior Minister Nestor Reverol denied that, calling instead for one opposition leader, Henrique Capriles, to be prosecuted for blocking streets, including impeding an ambulance.

“The exemplary behavior, capacity and training of our citizens’ security organs prevented the unpredictable consequences of these terrorist groups,” Reverol added.

The oil-producing nation’s political standoff took a new twist last week when the Supreme Court ruled that it was taking over the legislature’s functions.

That touched off an international outcry, and the tribunal quickly scrubbed the offending clauses.

But dozens of previous rulings overturning National Assembly measures have left it powerless anyway, and opposition leaders say recent events have shown the world Maduro’s autocratic face.

Lawmakers passed one motion on Wednesday denouncing the “rupture” of Venezuela’s constitution and another asking for the removal of Supreme Court judges.

But that would be merely symbolic since congress requires the support of other institutions, which are behind Maduro, to dismiss the judges.

“Stop being ridiculous; you’re carrying out a parliamentary ‘coup,'” said Socialist Party lawmaker Hector Rodriguez, accusing opposition leaders of caring less about Venezuelans’ problems than their own competing presidential ambitions.

(Additional reporting by Andreina Aponte; Writing by Andrew Cawthorne; Editing by Alistair Bell and Lisa Von Ahn)

U.S. military leaders say budget woes will impact readiness

U.S. Army Chief of Staff Gen. Mark Milley, left, stands with China's People's Liberation Army (PLA) Gen. Li Zuocheng, right, during a welcome ceremony at the Bayi Building in Beijing, Tuesday, Aug. 16, 2016. REUTERS/Mark Schiefelbein/Pool

By Mike Stone

(Reuters) – U.S. military leaders told a congressional committee on Wednesday that their ability to prepare to counter adversaries such as Russia and China will be impaired if Congress does not provide certainty about their budgets.

U.S. Army Chief of Staff General Mark Milley showed his frustration following years of uncertainty by telling the House Armed Services Committee he would consider it “professional malpractice” if Congress fails to pass a budget.

Milley was among the four heads of the U.S. military services testifying to the committee on the potential impact of a continuing resolution, a stopgap funding measure Congress could extend if it does not pass the 2017 budget by the end of April.

Current Defense Department funding is set to expire on April 28. If a budget bill is approved, it would allow the military its traditional authority to start new programs and distribute money with relative autonomy.

President Donald Trump has proposed a $30 billion defense budget supplement which would take the base Pentagon budget for fiscal 2017 to $541 billion.

Milley said the Army’s basic training would stop by summer if Congress does not pass a budget and enters a full-year continuing resolution.

The Air Force’s General David Goldfein said units not actively preparing to go into conflicts could be grounded this summer.

For the Navy, a full-year continuing resolution would delay funding needed to complete delivery of several ships and prevent it from buying numerous new ships, Chief of Naval Operations Admiral John Richardson said, without specifying which ships.

The commandant of the Marine Corps, General Robert Neller,‎ said construction would be delayed on specialized amphibious warships that Marines use during operations.

In December, Huntington Ingalls Industries Inc. won a contract to design and build the USS Fort Lauderdale, an amphibious transport dock ship that would be used by the Marines.

Just before testimony began on Capitol Hill, an Air Force F-16 fighter jet crashed during a training mission just six miles (10 km) southwest of Washington’s Joint Base Andrews. The pilot ejected and suffered non-life-threatening injuries, the military said.

The crash was brought up by Goldfein as he expressed relief that the pilot was alright, but later during a discussion about the time and expense it takes to maintain the Air Force’s fleet of aircraft, which are on average 27 years old.

(Reporting by Mike Stone; Editing by Bill Trott)

U.S. private sector adds 263,000 jobs in March: ADP

FILE PHOTO: People wait in line to attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson/File Photo

(Reuters) – U.S. private employers added 263,000 jobs in March, more than the number they hired in February and well above economists’ expectations, a report by a payrolls processor showed on Wednesday.

Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 187,000 jobs, with estimates ranging from 110,000 to 225,000.

Private payroll gains in the month earlier were revised down to 245,000 from the originally reported 298,000.

The report is jointly developed with Moody’s Analytics.

The ADP figures come ahead of the U.S. Labor Department’s more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment.

Economists polled by Reuters are looking for U.S. private payroll employment to have grown by 175,000 jobs in March, down from 227,000 the month before. Total non-farm employment is expected to have risen by 180,000.

The unemployment rate is forecast to stay steady at the 4.7 percent recorded a month earlier.

(Reporting by Richard Leong; Editing by Meredith Mazzilli)

EU offers Brexit trade talks, sets tough transition terms

People drink beer at a Pro-Brexit event to celebrate the invoking of Article 50, in London. REUTERS/Peter Nicholls

By Robin Emmott and Alastair Macdonald

VALLETTA/BRUSSELS (Reuters) – The European Union offered Britain talks this year on a future free trade pact but made clear in negotiating guidelines issued on Friday that London must first agree to EU demands on the terms of Brexit.

Those include paying tens of billions of euros and giving residence rights to some 3 million EU citizens in Britain, the proposed negotiating objectives distributed by EU summit chair Donald Tusk to Britain’s 27 EU partners showed.

The document, seen by Reuters, also sets tough conditions for any transition period, insisting Britain must accept many EU rules after any such partial withdrawal. It also spelled out EU resistance to Britain scrapping swathes of tax, environmental and labor laws if it wants to have an eventual free trade pact.

The guidelines, which may be revised before the EU27 leaders endorse them at a summit on April 29, came two days after Prime Minister Theresa May triggered a two-year countdown to Britain’s withdrawal in a letter to Tusk that included a request for a rapid start to negotiations on a post-Brexit free trade deal.

“Once, and only once we have achieved sufficient progress on the withdrawal, can we discuss the framework for our future relationship,” Tusk told reporters in Malta — a compromise between EU hardliners who want no trade talks until the full Brexit deal is agreed and British calls for an immediate start.

“Starting parallel talks on all issues at the same time, as suggested by some in the UK, will not happen,” Tusk said, while adding that the EU could assess as early as this autumn that Britain had made “sufficient progress” on the exit terms in order to open the second phase of negotiations, on future trade.

Brussels has estimated that Britain might owe it something of the order of 60 billion euros on departure, although it says the actual number cannot be calculated until it actually leaves.

What it does want is to agree the “methodology” of how to work out the “Brexit bill”, taking into account Britain’s share of EU assets and liabilities. Britain disputes the figure but May said on Wednesday that London would meet its “obligations”.

The Union’s opening gambit in what Tusk said would at times be a “confrontational” negotiation with May’s government also rammed home Brussels’ insistence that while it was open to letting Britain retain some rights in the EU during a transition after 2019, it would do so only on its own terms.

Britain would have to go on accepting EU rules, such as free migration, pay budget contributions and submit to oversight by the European Court of Justice — all things that drove last June’s referendum vote to leave and elements which May would like to show she has delivered on before an election in 2020.

“Should a time-limited prolongation of Union acquis be considered, this would require existing Union regulatory, budgetary, supervisory and enforcement instruments and structures to apply,” Tusk’s draft guidelines stated in reference to a transition period that diplomats expect could last two to five years to smooth Brexit.

“NO DUMPING”

It also stressed that a future trade pact, allowing for not just low or zero tariffs on goods but also regulatory alignment to promote trade in services, should not allow Britain to pick and choose which economic sectors to open up. That would prevent London giving undue subsidies or slashing taxes or regulations — “fiscal, social and environmental dumping”, in EU parlance.

The negotiations will be among the most complex diplomatic talks ever undertaken and the EU guidelines are only an opening bid. EU officials believe they have the upper hand in view of Britain’s dependence on exports to the continent, while British diplomats see possibilities to exploit EU states’ differences.

Tusk and Maltese Prime Minister Joseph Muscat, who holds the Union’s rotating presidency, warned against such efforts and insisted the EU would negotiate “as one”, through their chief negotiator, former French foreign minister Michel Barnier. He expects to start full negotiations in early June.

Tusk spelled out priorities for the withdrawal treaty, which Barnier hopes can be settled by November 2018, in time for parliamentary ratification by Brexit Day on March 29, 2019:

– the EU wants “reciprocal” and legal “enforceable” guarantees for all EU citizens who find their rights to live in Britain affected after a cutoff on the date of withdrawal

– businesses must not face a “legal vacuum” on Brexit

– Britain should settle bills, including “contingent liabilities” to the EU

– agreement on border arrangements, especially on the new EU-U.K. land border in Ireland, as well as those of British military bases on EU member Cyprus.

(Writing by Alastair Macdonald; Editing by Catherine Evans)

Consumer spending slows; inflation pushing higher

A customer shops at a Walmart Supercenter in Rogers, Arkansas June 6, 2013. REUTERS/Rick Wilking

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer spending barely rose in February amid delays in the payment of income tax refunds, but the biggest annual increase in inflation in nearly five years supported expectations of further interest rate hikes this year.

The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent. That was the smallest gain since August and followed an unrevised 0.2 percent rise in January.

Economists had expected a 0.2 percent increase.

The government delayed the issuing of tax refunds this year as part of efforts to combat fraud. Spending last month was held back by a 0.1 percent dip in purchases of big-ticket items like automobiles. While unseasonably warm weather reduced households’ heating bills, it restricted spending last month.

Weak consumer spending suggested that economic growth slowed further in the first quarter. Gross domestic product increased at a 2.1 percent annualized rate in the fourth quarter, stepping down from the July-September quarter’s brisk 3.5 percent pace.

Despite signs of moderate growth, the Federal Reserve is expected to raise interest rates at least twice more this year. The U.S. central bank raised its benchmark overnight interest rates by a quarter of a percentage point this month.

Prices for U.S. Treasuries fell on the data, while the dollar was little changed against a basket of currencies. U.S. stock index futures were slightly lower.

With consumer confidence at 16-year highs and labor market tightness pushing up wage growth, the moderation in spending is likely to be temporary. Even with economic growth slowing at the start of the year, inflation is rising.

The personal consumption expenditures (PCE) price index gained 0.1 percent last month after jumping 0.4 percent in January. That lifted the year-on-year rate of increase in the PCE price index to 2.1 percent, the biggest gain since April 2012. The PCE price index rose 1.9 percent in January.

Excluding food and energy, the so-called core PCE price index increased 0.2 percent last month after rising 0.3 percent in January. In the 12 months through February, the core PCE price index increased 1.8 percent after a similar gain in January.

The core PCE is the Federal Reserve’s preferred inflation measure and is running below its 2 percent target. Inflation is now in the upper end of the range that Fed officials in March felt would be reached this year.

Rising price pressures are also eating into consumer spending. When adjusted for inflation, consumer spending fell 0.1 percent in February after declining 0.2 percent in January.

That suggests a sharp deceleration in the pace of consumer spending after a robust 3.5 percent growth rate in the fourth quarter.

Personal income rose 0.4 percent last month after advancing 0.5 percent in January. Wages increased 0.5 percent, the biggest gain in five months.

Income at the disposal of households after accounting for inflation increased 0.2 percent after dipping 0.1 percent in January. Savings rose to a five-month high of $808.0 billion from $770.9 billion in January.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Fourth-quarter economic growth revised higher, boosted by consumer spending

Commuters wait to ride New York City Subway in New York, December 12, 2013. REUTERS/Eric Thayer

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. economic growth slowed less than previously reported in the fourth quarter as robust consumer spending spurred the largest increase in imports in two years.

Gross domestic product increased at a 2.1 percent annualized rate instead of the previously reported 1.9 percent pace, the Commerce Department said on Thursday in its third GDP estimate for the period. The economy grew at a 3.5 percent rate in the third quarter.

The government also said that corporate profits after tax with inventory valuation and capital consumption adjustments increased at an annual rate of 2.3 percent in the fourth quarter after rising at a 6.7 percent pace in the previous three months.

Profits were held back by a $4.95 billion settlement between the U.S. subsidiary of Volkswagen AG <VOWG_p.DE> and the U.S. federal and state governments for violation of environmental regulations.

Data on trade as well as consumer and construction spending suggest that economic growth moderated further at the start of 2017. The Atlanta Federal Reserve is forecasting GDP rising at a rate of 1.0 percent in the first quarter.

With the labor market near full employment, the data likely understate the health of the economy. GDP tends to be weaker in the first quarter because of calculation issues the government has acknowledged and is trying to resolve.

A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 3,000 to a seasonally adjusted 258,000 for the week ended March 25.

Claims have now been below 300,000, a threshold associated with a healthy labor market for 108 straight weeks. That is the longest stretch since 1970 when the labor market was smaller.

The economy grew 1.6 percent for all of 2016, its worst performance since 2011, after expanding 2.6 percent in 2015.

Prices of U.S. government debt fell after the data. U.S. stock index futures pared losses, as did the U.S. dollar <.DXY> against a basket of currencies.

STRONG IMPORT GROWTH The moderate economic expansion poses a challenge to President Donald Trump, who has vowed to boost annual growth to 4 percent by slashing taxes, increasing infrastructure spending and cutting regulations. The Trump administration has offered few details on its economic policies.

Economists polled by Reuters had expected fourth-quarter GDP would be revised up to a 2.0 percent rate.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised up to a 3.5 percent rate in the fourth quarter. It was previously reported to have risen at a 3.0 percent rate.

Some of the increase in demand was satiated with imports, which increased at a 9.0 percent rate. That was the biggest rise since the fourth quarter of 2014 and was an upward revision from the 8.5 percent pace reported last month.

Exports declined more than previously estimated, leaving a trade deficit that subtracted 1.82 percentage point from GDP growth instead of the previously reported 1.70 percentage points.

There was an upward revision to inventory investment. Businesses accumulated inventories at a rate of $49.6 billion in the last quarter, instead of the previously reported $46.2 billion. Inventory investment added 1.01 percentage point to GDP growth, up from the 0.94 percentage point estimated last month.

Business investment was revised lower to reflect a more modest pace of spending on intellectual property, which increased at a 1.3 percent rate instead of the previously estimated 4.5 percent rate.

There were no revisions to spending on equipment. Investment in nonresidential structures was revised to show it falling at a less steep 1.9 percent pace in the fourth quarter. It was previously reported to have declined at a 4.5 percent rate.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Pending home sales surge to 10-month high

A home for sale sign hangs in front of a house in Oakton in Virginia March 27, 2014. REUTERS/Larry Downing

WASHINGTON (Reuters) – Contracts to buy previously owned U.S. homes jumped to a 10-month high in February, pointing to robust demand for housing ahead of the spring selling season despite higher prices and mortgage rates.

The National Association of Realtors said on Wednesday its Pending Home Sales Index, based on contracts signed last month, surged 5.5 percent to 112.3, the highest reading since April. It was also the second best reading since May 2006.

Contract signing last month was likely boosted by unseasonably warm temperatures. The gains reversed January’s 2.8 percent drop. Pending home contracts become sales after a month or two, and last month’s surge implied a pickup in home resales after they tumbled 3.7 percent in February.

Economists had forecast pending home sales rising 2.4 percent last month. Pending home sales increased 2.6 percent from a year ago.

Demand for housing is being driven by the labor market, which is generating wage increases, as it nears full employment. Sales activity, however, remains constrained by tight inventories, which are driving up home prices.

Given labor market strength, economists expect only a modest impact from higher mortgage rates. The 30-year fixed mortgage rate is currently at 4.23 percent, below a more than 2-1/2-year high of 4.32 percent hit in December.

Contracts increased 3.4 percent in the Northeast and jumped 3.1 percent in the West. They surged 11.4 percent in the Midwest and rose 4.3 percent in the South.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)