Pending Home Sales Near
6-Year High

An index measuring the number of Americans who signed contracts to buy homes in October jumped to nearly its highest level in almost six years. Steady job gains and record-low mortgage rates have made home buying more attractive.

The National Association of Realtors said that its seasonally adjusted pending home sales index rose 5.2 percent to 104.8 in October. Excluding a few months when the index spiked because of a homebuyer tax credit, that is the highest level since March 2007.

The increase points to healthy sales increases of previously occupied homes in the months ahead. There's generally a one- to two-month lag between a signed contract and a completed sale.

The rise in sales adds to evidence of a steady housing recovery. Builders are more confident in sales and are starting construction on more homes. Home prices are rising on a consistent basis, which encourages more potential buyers to come off the sidelines and purchase homes. And more people may put their homes on the market if they gain confidence that they can sell at a good price.

The report is "another indicator suggesting that the recovery in housing has broadened and has sustained momentum," Michael Gapen, an economist at Barclays Capital, said in a note to clients.

Signed contracts jumped 15.6 percent in the Midwest and rose 5.5 percent in the South. But they fell 1.1 percent in the West and dipped 0.1 percent in the Northeast.

Superstorm Sandy lowered pending sales in the Northeast, the Realtors' group said. The West was hurt by low inventories of available homes.

Mortgage rates remain near record lows. The average rate on the 30-year loan is hovering below 3.5 percent, the lowest on records dating to 1971.

A big reason for the rebound in housing is that the excess supply of homes that built up before the housing crisis has finally thinned out. The number of previously occupied homes available for sale has fallen to a 10-year low. The inventory of new homes is also near the lowest level since 1963.

At the same time, more people are looking to buy or rent a home after living with relatives or friends during and immediately after the Great Recession.

Those trends are also pushing up home sales and construction. Sales of previously occupied homes are near five-year highs, excluding temporary spikes in 2009 and 2010 when a homebuyer tax credit boosted purchases.

Builders, meanwhile, are more optimistic that the recovery will endure. A measure of their confidence rose to the highest level in six and a half years this month. And builders broke ground on new homes and apartments at the fastest pace in more than four years last month.

Inventories Boost U.S.
Economic Growth

The U.S. economy grew faster than initially thought in the third quarter as restocking by businesses provided a big boost, but consumer and business spending were revised lower in a sobering reminder of the recovery's underlying weakness.

Gross domestic product expanded at a 2.7 percent annual rate, the Commerce Department said on Thursday, as export growth also helped to offset the weakest consumer spending and first drop in business investment in more than a year.

While the growth pace was much quicker than the 2 percent rate the government estimated last month and the best since the fourth quarter of 2011, it was hardly a sign of strength as the lift from inventories will likely be lost in the fourth quarter.

The economy is also bracing for deep cuts in government spending and tax increases early next year, known as the fiscal cliff, which could suck $600 billion from the economy and fuel a fresh recession.

Economists polled by Reuters had expected GDP growth to be raised to a 2.8 percent pace.

"The bulk of the (GDP) rise is inventory adjustment," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "So I think the market may look past this number, thinking real GDP in the economy is a bit lower. It was also concerning to see consumer spending revised down."

A separate report from the Labor Department showed initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 393,000, but still staying elevated after superstorm Sandy.

The storm, which ripped through the East Coast in late October, has distorted initial claims data in recent weeks, making it hard to get a clear pulse of the labor market, whose struggles have underscored the economy's weakness.

According to a recent report, business inventories added 0.77 percentage point to third-quarter GDP growth. They were previously estimated to have subtracted 0.12 percentage point.

Excluding inventories, GDP rose at a revised 1.9 percent rate, reflecting sluggish demand. Final sales of goods and services produced in the United States had been previously estimated to have increased at a 2.1 percent pace.

A smaller trade deficit was also a factor behind the upward revision to GDP as export growth outpaced a rise in imports. But the trend in exports is unlikely to be sustained given slowing global demand, especially in China and debt troubled Europe.

Trade contributed 0.14 percentage point to GDP growth instead of subtracting 0.18 percentage point, as previously reported.

Other details of the report were rather weak. Consumer spending, which accounts for about 70 percent of U.S. economic activity, was lowered to a 1.4 percent growth rate - the slowest since the second quarter of 2011, from the 2 percent gain previously reported.

Consumer spending increased at a 1.5 percent rate in the second-quarter. Business spending was revised to show much deeper cutbacks, which have been blamed on the fears a tightening in fiscal policy next year. Business investment fell at a revised 2.2 percent rate instead of a 1.3 percent decline. That was the first drop since the first quarter of 2011.

Part of the drag in business investment, which had been a source of strength for the economy, came from equipment and software, where spending was the weakest since the second quarter of 2009.

The report also showed that after-tax corporate profits rose at a 3.3 percent rate in the third quarter after gaining 2.2 percent in the second quarter.

Spending on nonresidential structures contracted after five straight quarters of growth. Government investment was revised to a 3.5 percent growth rate from 3.7 percent as defense, and state and local government spending estimates were pared.

Growth in home building was trimmed to a 14.2 percent rate from 14.4 percent. Residential construction is benefiting from the Federal Reserve's ultra-accommodative monetary policy stance, which has driven mortgage rates to record lows.

White House, Congress Talk as 'Fiscal Cliff' Nears

President Barack Obama and Republican House Speaker John Boehner recently conferred briefly on how to avert the economy-rattling "fiscal cliff," their first one-on-one discussion in five days.

Obama and Boehner's 15-minute phone call came amid increasing anxiety that the White House and top Republicans are wasting time needed to negotiate a way out of a series of tax increases and spending cuts due to begin in January.

There has been little evident progress in negotiations between the two sides. Republicans complain that the White House is slow-walking the talks and has yet to provide specifics on how Obama would curb the rapid growth of benefit programs like Medicare and Medicaid.

"We have not seen any good-faith effort on the part of this administration to talk about the real problem that we're trying to fix," said House Majority Leader Eric Cantor, R-Va.

Obama is mounting a public campaign to build support and leverage in the negotiations, appearing at the White House with middle-class taxpayers and launching a campaign on Twitter to bolster his position.

"Right now, as we speak, Congress can pass a law that would prevent a tax hike on the first $250,000 of everybody's income," Obama said. "And that means that 98 percent of Americans and 97 percent of small businesses wouldn't see their income taxes go up by a single dime."

Obama is insisting that tax rates go up on family income exceeding $250,000; Boehner is adamant that any new tax revenues come from overhauling the tax code, clearing out tax breaks and lowering rates for all.

Republicans are also demanding significant cuts to so-called entitlement programs like Medicare, such as an increase in the eligibility age for the program from 65 to perhaps 67.

"It's time for the president and Democrats to get serious about the spending problem that our country has," Boehner said at a news conference Wednesday in the Capitol. Boehner, like Obama, expressed optimism that a deal could be reached.

Across-the-board cuts to the Pentagon and domestic programs are currently set to strike the economy in January, as well as the expiration of Bush-era tax cuts on income, investments, married couples, and families with children. That combination of tax increases and spending cuts would wring more than half a trillion dollars from the economy in the first nine months of next year, according to the Congressional Budget Office.

No one anticipates a stalemate lasting that long, but many experts worry that even allowing the spending cuts and tax increases for a relatively brief period could rattle financial markets.

From their public statements, Obama and Boehner appear at an impasse over raising the two top tax rates from 33 percent and 35 percent to 36 percent and 39.6 percent. Democrats seem confident that Boehner ultimately will have to crumble, but Obama has a lot at stake as well, including a clear agenda for priorities like an overhaul of the nation's immigration laws.

Obama is also meeting privately Thursday with his defeated Republican rival Mitt Romney. The president has cast his victory over Romney as a sign that Americans back his tax proposals, which were a centerpiece of his re-election campaign.

While in Washington, Romney will also meet with his former running mate, Rep. Paul Ryan. The Wisconsin congressman is chairman of the House Budget Committee and deeply involved in the fiscal cliff discussions.