Demand for new U.S. homes was stronger than projected in March, Commerce Department data showed yesterday. Houses sold at a 328,000 annual rate, down from an upwardly revised 353,000 pace in February that was the highest in two years.
The improvement helped D.R. Horton Inc., the largest U.S. homebuilder by volume, beat analysts' earnings estimates when it reported second quarter results on April 23. A "strong" sales pace has continued through the first half of April, Chairman Donald R. Horton said in a statement as the company predicted stronger closings and profitability in the second half of the fiscal year.
A cooling labor market may limit gains in household demand. Employers added 120,000 jobs in March, the least since October. That capped a six-month period in which jobs grew by 1.1 million as the unemployment rate declined to 8.2 percent in March from 9 percent in September.
"Over the next several years, I anticipate that we will fall far short in achieving our maximum employment objective," Fed Vice Chairman Janet Yellen said in an April 11 speech endorsing the central bank's "highly accommodative" policy.
The yield on the 10-year Treasury declined to 1.97 percent late yesterday from 2.03 percent on March 12. The yield climbed to 2.38 percent on March 19, as speculation grew that the central bank may be forced to raise interest rates earlier than its late 2014 timeframe.
"The markets and a lot of other people started going in the direction of thinking the Fed might actually tighten policy some time next year," said Paul Dales, senior U.S. economist at Capital Economics in London. "That move has gone into reverse over the last couple of months."
In March, traders in the Fed funds futures market were betting the central bank would raise interest rates to 0.5 percent in December 2013. Traders currently do not expect a fed funds rate of 0.5 percent until September of 2014.
None of the 51 economists in a Bloomberg survey expected additional Fed asset purchases to be announced today. Fourteen percent of economists said such purchases would be announced at the Fed's meeting in June. Sixty-nine percent said the Fed would refrain from additional asset purchases. The remainder saw purchases as likely sometime after the second quarter of this year.
Central bankers have already taken unprecedented steps to boost the economy as it battled the longest and deepest recession since the Great Depression and its aftermath.
The Fed lowered its target interest rate to a range of zero to 0.25 percent in December 2008, and it purchased $2.3 trillion of assets in two rounds to push down longer-term borrowing costs.