New-Home Sales Tumble 8.3%
As Prices Decline More Than 7%

New-home sales resumed falling in August, sinking to the lowest level in seven years, and prices tumbled, signaling the housing sector will remain a drag on the U.S. economy.

Sales of single-family homes decreased by 8.3% last month to a seasonally adjusted annual rate of 795,000, the Commerce Department said Thursday. July new-home sales rose 3.8% to an annual rate to 867,000; originally, the government said July sales rose by 2.8% to 870,000.

The median estimate of 26 economists surveyed by Dow Jones Newswires was a 4.6% decline in August sales to an 830,000 annual rate. The level of 795,000 was the lowest since 793,000 in June 2000.

Year-to-year, new-home sales were 21.2% lower than the level in August 2006.

The housing sector has cost the U.S. economy growth for six straight quarters. Tightening of lending standards and troubles in the mortgage market have made it more difficult for would-be buyers. And falling home prices are causing them to think twice about a purchase.

The median price of a new home decreased by 7.5% to $225,700 in August from $243,900 in August 2006. The average price declined by 8.0% to $292,000 from $317,300 a year earlier. In July this year, the median price was $246,200 and the average was $306,200.

The ratio of new houses for sale to houses sold rose during August, going to 8.2 from 7.6 in July. There were an estimated 529,000 homes for sale at the end of August, down from July's 537,000.

Regionally last month, new-home sales decreased 20.8% in the West and 14.7% in the South. Sales increased 42.3% in the Northeast and 20.5% in the Midwest.

An estimated 68,000 homes were actually sold in August, down from 74,000 in July, based on figures not seasonally adjusted.

GDP Revised Down

The U.S. economy was a little softer last spring than earlier estimated, the government says in a report Thursday that gives a slightly less rosy picture of the nation's overseas trade activity.

Gross domestic product rose at a still-robust 3.8% annual rate April through June, the Commerce Department reported. But the new estimate for second-quarter GDP reflected a revision down from a previously reported 4.0% increase.

The adjustment was in line with Wall Street expectations; the median estimate of 25 economists surveyed by Dow Jones Newswires was revised growth of 3.8%.

The 3.8% climb in second-quarter GDP marked the strongest increase since a 4.8% surge in first-quarter 2006. GDP in the first three months of 2007 grew a measly 0.6%.

Some gauges measuring second-quarter price inflation were raised slightly, according to Thursday's data revisions. The government's price index for personal consumption increased 4.3% April through June, compared to the previously estimated 4.2% climb and the first quarter's 3.5% rise. The PCE price gauge excluding food and energy increased at 1.4%, above a previously estimated 1.3% advance but down from the first quarter's 2.4% climb.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased an unrevised 3.8%, the same rate of advance as in the first quarter. The chain-weighted GDP price index rose 2.6%, below a previously estimated 2.7% advance and down from the first quarter's 4.2% climb.

Corporate profits after taxes were revised down. After-tax earnings climbed 5.2% to $1.152 trillion in April through June from the first quarter, the report showed. Commerce previously estimated a 5.4% gain. Profits in the first quarter increased 1.5%. Year-to-year, profits increased by 3.3% since the second quarter of 2006.

Higher imports were behind the government's revision to GDP, a measure of all goods and services produced in the economy. As a result of those brisker foreign purchases, international trade gave a smaller boost to GDP than earlier thought. True, imports decreased in the second quarter, but the drop was only 2.7% -- instead of the earlier estimated 3.2% decline. The data showed U.S. exports rose by 7.5% instead of rising 7.6% as earlier reported. So, trade added 1.32 percentage points to GDP; previously, Commerce said trade contributed 1.42 percentage points to growth. In the first quarter, exports had gone up 1.1% and imports rose 3.9%.

Residential fixed investment, the GDP component that includes spending on housing, plunged by 11.8% in the second quarter, a bigger drop than the earlier estimated 11.6%. First-quarter spending fell by 16.3%.

The second-quarter plunge in housing took a bite of 0.62 percentage point out of GDP -- bigger than the previously estimated 0.61 percentage point reduction.

Business spending was also revised a bit lower. Businesses increased second-quarter spending by 11.0%, revised down from a previously reported 11.1% advance. Investment in structures surged 26.2%. Equipment and software increased 4.7%. Overall business spending rose 2.1% in the first quarter.

Businesses increased inventories by $5.8 billion in the second quarter; earlier, Commerce estimated a $5.4 billion increase. In the first quarter, inventories rose $100 million.

The increase contributed 0.22 percentage point to second-quarter GDP. Previously, Commerce said inventories added 0.21 percentage point.

Real final sales of domestic product, which is GDP less the change in private inventories, climbed 3.6%, below the earlier estimated 3.7% increase. First-quarter sales rose 1.3%.

Most of GDP is made up of consumer spending. Thursday's data made no revision to spending, confirming outlays climbed 1.4%. Spending made a contribution of 1.00 percentage point to GDP April through June. But spending is much weaker than it was in the first quarter, when outlays rose 3.7%.

Second-quarter services spending increased an unrevised 2.3%. Consumer purchases of durable goods increased 1.7%, also unrevised. Durables advanced by 8.8% in the first quarter. Durable goods are expensive items designed to last at least three years, such as computers and trucks. Second-quarter nondurables spending fell by 0.5%.

Federal government spending increased 6.0%, instead of 5.9%. First-quarter spending fell, down 6.3%. State and local government outlays increased 3.0%.

Jobless Claims Decline

The number of U.S. workers filing new claims for jobless benefits tumbled sharply last week to a four-month low, adding support to other evidence suggesting that last month's surprising decline in employment was temporary.

The latest claims figures, if confirmed by next week's employment report for September, would likely force investors to pull back expectations for further interest-rate reductions by the Federal Reserve.

Jobless claims fell 15,000 to 298,000 on a seasonally-adjusted basis in the week ended Sept. 22, the lowest level since May 12, the Labor Department said Thursday. That's the third decline in four weeks, and brought claims below the 300,000 threshold that economists usually associate with a very tight labor market. Claims for the Sept. 15 week were revised to 313,000 from 311,000.

Wall Street forecasts had called for a 5,000 rise last week to 316,000, according to a Dow Jones Newswires survey.

The four-week average -- which economists use to gauge underlying labor market trends -- fell by 9,750 last week to 311,500, the lowest level since Aug. 4. That's the fourth-straight decline.

Investors are closely watching U.S. labor markets in the wake of a report earlier this month showing that nonfarm payrolls fell 4,000 in August, the first decline in four years. That drop helped persuade the Federal Reserve to lower the fed funds rate by 50 basis points for the first time in four years at its meeting last week.

The Fed said it would "act as needed" to prevent a housing recession and credit crunch from harming the broader economy. Fed-watchers said the August payrolls decline was a decisive factor in pushing central bank to act sooner, rather than later in easing interest rates.

However, last month's jobs report seems to have overstated softness in the labor market. In addition to the recent drop in jobless claims, state-by-state data released Tuesday by the Labor Department pointed to modest payroll growth in August, in contrast to the national figures.

According to the Labor Department report Thursday, continuing claims for workers drawing unemployment benefits for more than a week rose 11,000 to 2,551,000 in the week ended Sept. 15, the latest week for which such data are available.

The four-week average for continuing claims dropped 5,500 to 2,570,000, suggesting it is getting easier for workers to find new jobs.

The insured unemployment rate was 1.9% in the Sept. 15 week, unchanged from the previous week.

There were 35 states and territories reporting an increase in initial jobless claims for the Sept. 15 week, while 18 reported a decrease.

Michigan had the biggest decrease, 2,711, thanks to fewer layoffs in the automobile industry. California reported the sharpest increase, 5,370, due to layoffs in construction and service industries.

--Brian Blackstone contributed to this article.

Email your comments to rjeditor@dowjones.com.