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January Existing Home Sales Tick Up; Philadelphia Fed Drops More Than Expected

A construction worker uses a hammer at a new housing development in San Mateo, California.
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A construction worker uses a hammer at a new housing development in San Mateo, California.

U.S. home resales edged higher in January and left the supply of homes at its lowest level in 13 years, a sign that steam is gathering in the housing market. Leading economic indicators gained modeslty in January.

Also, factory activity in the U.S. mid-Atlantic region unexpectedly contracted in February for the second month in a row, falling to the lowest level in eight months as new orders tumbled, the Philadelphia Federal Reserve showed on Thursday.

The National Association of Realtors said that existing home sales rose 0.4 percent last month to a seasonally adjusted annual rate of 4.92 million units.

That was the second highest rate of sales since November 2009, when a federal tax credit for home buyers was due to expire. Analysts polled by Reuters had forecast a 4.9 million-unit rate.

(Click here to track the U.S. stock market's reaction to this report.)

The U.S. housing market tanked on the eve of the 2007-09 recession and has yet to fully recover, but steady job creation helped the housing sector last year, when it added to economic growth for the first time since 2005.

The nation's inventory of existing homes for sale, which is not seasonally adjusted, fell 4.9 percent from December to 1.74 million, the lowest level since December 1999.

Many Americans are holding back from putting their homes on the market because they owe more on their mortgages than their homes are worth. A sharp drop in inventories over the last year has given developers more incentive to build homes. Home building is expected to boost the economy more in 2013 than it did last year.

Inventories were down 25.3 percent from January 2012.

At the current pace of sales, inventories would be exhausted in 4.2 months, the lowest rate since April 2005. The low inventories are also helping pushing prices higher. Nationwide, the median price for a home resale was $173,600 in January, up 12.3 percent from a year earlier.

On the manufacturing front, the Philadelphia Federal Reserve Bank said its business activity index dropped to minus 12.5 from minus 5.8 in January, coming in far below economists' expectations for positive 1.0. It was the lowest level since June of last year.

A reading below zero indicates contraction in the region's manufacturing sector. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware. The gauge of new orders fell to minus 7.8 from minus 4.3.

The report is seen as one of the first monthly indicators of the health of U.S. manufacturing leading up to the national report by the Institute for Supply Management

Also, U.S. leading economic indicators — a gauge of future U.S. economic activity — rose modestly in January, pointing to steady growth in the months ahead.

The Conference Board said on Thursday its Leading Economic Index increased 0.2 percent to 94.1 last month after advancing 0.5 percent in December.

Economists polled by Reuters had expected the index to rise 0.3 percent in January.

"The indicators point to an underlying economy that remains relatively sound but sluggish,'' said Ken Goldstein, an economist at the Conference Board. "The biggest positive factor is housing. The biggest risk, however, is the adverse impact of cuts in federal spending.''

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