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Housing recovery signs point to healthier U.S. economy

The sputtering U.S. economy seems reluctant to kick back into full recovery mode, but there are signs of improvement and many economists think that by the end of this year it could be chugging along at a healthy pace.

On Friday, there was another positive sign with the release of the U.S. Conference Board's Leading Economic Index – a composite of 10 indicators – that showed a solid 0.6-per-cent gain in April. The numbers hint at an economy moving into expansion mode, the board said, although it warned that government spending cuts could dent consumer and business confidence.

This week, three more sets of numbers will help fill out the picture of the state of the U.S. economy – a vital concern for Canada when so much of our economic growth is tied to the our southern neighbour.

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On Wednesday, fresh numbers will reveal the state of the U.S. resale housing market in April, followed on Thursday by new home sales figures for the same month. Together those numbers will give a sense of the current level of consumer confidence. They will be followed on Friday by durable goods orders, an indicator of the health of business investment.

Sal Guatieri, senior economist at BMO Nesbitt Burns Inc., projects that existing home sales in April will hit an annual rate of five million for the first time in five years, a sign of both improved household finances and the affordability of properties. New home sales should rise about 2 per cent to 425,000, he said, a second consecutive month of growth but still far below normal levels.

As for durable goods orders, expectations are less optimistic.

Business investment, particularly in the manufacturing sector, has been relatively weak lately, said Andrew Grantham, an economist at CIBC World Markets. That will likely continue to be reflected in the April durable goods orders figures, he said. While transportation – which includes aircraft orders – is extremely volatile and may jump, when that sector is stripped out the value of orders is likely to fall by about 0.5 per cent, Mr. Grantham predicted.

He projects "a flattish trend" over the next few months, so don't expect that "business investment is going to be adding much to U.S. GDP."

The real drag on the U.S. economy at the moment is from the public sector, Mr. Grantham said, because of the intense spending restraints on the federal government.

He is expecting a growth rate of slightly below 2 per cent for the second and third quarters of 2013, but a sharp pickup in the fourth quarter. For 2014, CIBC is projecting solid GDP growth of 3.3 per cent, as the economy gains traction.

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About the Author
Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More

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