WASHINGTON – Gains in housing and manufacturing propelled the U.S. economy over the winter, according to reports released Tuesday, and analysts say they point to the resilience of consumers and businesses as government spending cuts kick in.
U.S. 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. But the overall picture of an improving economy drove stocks higher on Tuesday.
The Standard & Poors 500 gained 12 points to close at 1,563 – a point away from its record high reached in October 2007. The Dow Jones industrial average rose 111 points, its biggest gain in three weeks.
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 last recession.
Steady gains should encourage more people to buy and put their homes on the market, keeping the recovery going.
And higher home prices make people feel wealthier, which leads consumers to spend more and drives more economic growth.
Sales of new homes cooled off in February to a seasonally adjusted annual rate of 411,000, the Commerce Department reported. Thats down from Januarys pace of 431,000, which was the fastest since September 2008. But Februarys 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 were slowly making our way in that direction, said Jennifer Lee, senior economist with BMO Capital Markets. Manufacturing is also boosting the economy this year, and factories were busier in February, according to a separate Commerce report on durable goods orders.
Februarys 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 Januarys spending.