Signs of Recovery in Us Economy

Fears that the US economy is set to slump in 2007 were allayed yesterday by a rush of strong data from the manufacturing, housing and consumer sectors.

The figures pushed the beleaguered dollar higher on the foreign exchanges but US bond markets were unsettled by the prospect that interest rates were less likely to fall in the first half of the year than they had previously thought.

Sales of existing homes rose in November, according to the National Association of Realtors, defying predictions that they would fall. Sales were up 0.6% in November to an annual sales equivalent of 6.28m houses or flats.

A similar positive surprise on new home sales was reported on Wednesday. "The housing contraction has bottomed," said NAR's chief economist, David Lereah.

Yesterday's report was not all positive, however, as it showed prices of existing homes fell 3.1% from a year earlier, the fourth consecutive decline.

News on consumer confidence was similarly upbeat. The Conference Board said its index of consumer sentiment climbed to a better-than-expected 109 in December - its highest reading since April - from an upwardly revised 105.3 in November, thanks to an improved perception among ordinary Americans of the state of the jobs market. And a key gauge of business sentiment in the midwest, known as the Chicago PMI, expanded in December at a faster rate than expected.

"Today's US data has come on the strong side of expectations," said James Knightley, economist at ING. "With the labour market softening and the housing market still causing significant concern, we still favour the Fed cutting rates through the first half of 2007."