Stock markets in the US approached 14-month high after strong house sales offset disappointment over lower economic growth. The National Association of Realtors revealed a surprise 7.4% rise in existing home sales, to 6.54 million last month, the property market’s monthly best performance since February 2007.
The NAR reading was more than double the 3.3% growth that economists had forecast. Sales were boosted by a federal tax credit for first-time buyers that had been scheduled to expire on November 30. With the credit extended to June 30, house purchases are expectd to slump again this month and next.
However, November’s sales rise was enough to improve investors’ confidence, sending the Dow Jones industrial average to 10479 points by midday, close to a high seen most recently on October 2 last year. At 1120.27 points, the S&P also flirted with levels of 14 months ago.
This was despite disappointing news from the Commerce Department, which revised GDP for the third quarter to 2.2%, down from its previous estimate of 2.8% and well below the first estimate of 3.5%. the department attributed the reduction to lower spending by companies on both inventory and fixed investment, such as equipment.
The Commerce Department said that private companies had cut their inventories by $139.2 billion in the third quarter, after decreases of $160.2 billion in the second quarter and 113.9 billion in the first.
Economists said that reduced inventory spending in the third quarter, as companies were forced to rebuild their stockpiles. Economists polled this month by Bloomberg forecast 3% growth in the final quarter, although some have since increased their estimates to as high as 4.5%.
Consumer spending, which grew by 2.8% in ther final GDP reading for the third quarter, down from 2.9% in an earlier estimate, has been stronger than expected going into the festive season.
Figures published this month showed that consumer confidence was also up for the first time in three months. The Federal Reserve held interest rates at 0% to 0.25% this month, citing low inflation and the need to continue to stimulate the economy.
The third-quarter growth marked the first time that the US economy had expanded after four quarters of contraction. The Commerce Department will release its first estimate of fourth-quarter GDP on January 29.