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Manufacturing, housing cited for lifting economy

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By The Associated Press
Wednesday, March 27, 2013, 12:01 a.m.
 

WASHINGTON — Gains in housing and manufacturing propelled the U.S. economy over the winter, according to reports released on Tuesday, and analysts say they point to the resilience of consumers and businesses as government spending cuts kick in.

Home prices rose 8.1 percent in January, the fastest annual rate since the peak of the housing boom in the summer of 2006. And demand for longer-lasting factory goods jumped 5.7 percent in February, the biggest increase in five months.

February new-home sales and March consumer confidence looked a little shakier. Sales of new homes cooled off in February to a seasonally adjusted annual rate of 411,000, the Commerce Department reported. That's down from January's pace of 431,000, which was the fastest since September 2008.

But February's pace was still better than every other month since April 2010, when a temporary home-buying tax credit was boosting sales. And sales are 12.3 percent higher than a year ago.

“We are still far from the healthy level of 700,000, but we're slowly making our way in that direction,” said Jennifer Lee, senior economist with BMO Capital Markets. “We just have to accept the fact that the path will be interrupted once in a while, and that's what happened in February.”

“There is nothing in this data that says the economy is falling back,” said Joel Naroff, chief economist at Naroff Economic Advisors.

A recovery in housing has helped lift the economy this year and is finally restoring some of the wealth lost during the Great Recession.

The year-over-year rise in home prices reported by the Standard & Poor's/Case Shiller 20-city index was the fastest since June 2006. Prices rose in all 20 cities and eight markets posted double-digit increases, including some of the hardest hit during the crisis. Prices rose 23.2 percent in Phoenix, 17.5 percent in San Francisco and 15.3 percent in Las Vegas.

The strength in home prices has far from erased all the damage from the crisis. Home prices nationwide still are 29 percent below their peak reached in August 2006. Still, steady gains should encourage more people to buy and put their homes on the market, keeping the recovery going.

Manufacturing is boosting the economy this year, and factories were busier in February, according to a Commerce report on durable goods orders. February's increase was driven by a surge in commercial aircraft orders.

, which tend to be volatile. Still, orders for motor vehicles and parts increased solidly, suggesting demand for cars and trucks remains strong.

Orders for machinery and other goods that signal business investment plans fell sharply in February. But the decline followed the biggest monthly gain in nearly three years. Economists had expected companies to ease up after January's spending spree. When looking at the two months together, business investment has accelerated from the end of last year and should contribute to economic growth.

“The picture of business spending to start the year is fairly healthy,” said Dan Greenhaus, chief global strategist at BTIG

One concern is that tax increases and government spending cuts could stunt the economy's momentum. Both weighed on consumers' minds in March.

The Conference Board, a New York-based private research group, said its Consumer Confidence Index fell to 59.7 this month, down from 68 in February. The decline was mainly the result of a drop in expectations for the economy during the next six months, though consumers also were pessimistic regarding current economic conditions.

Some economists think the timing of the survey might have exacerbated the decline.

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