Consumer spending posted its second straight monthly increase in November, rising 0.5 percent, the government said Wednesday. But new homes clearly weren't on the shopping list. New home sales plunged unexpectedly to the lowest level since April.
The reports were evidence that the recovery from a deep recession is proceeding in fits and starts, with households struggling in a bleak job market. At the same time, economists said the economy was much improved from this time last year, when the nation was gripped by the financial crisis.
"People are continuing to pay down their debts, and they remain concerned about their financial futures and whether they will have jobs," said Sal Guatieri, an economist at BMO Capital Markets. "Santa's toy bag won't exactly be brimming with goodies this year, but at least he will show up, unlike last year."
Americans' income, meanwhile, ticked up at the fastest rate in six months last month, though the 0.4 percent increase was less than economists expected. That reflected a $16.1 billion increase in wages and salaries, helped by last month's drop in unemployment.
But consumers are still worried about job security, and that weighs on decisions about big purchases such as new homes.
The 11 percent slump in new home sales from October's pace shows that consumers are taking their time after an extension of a deadline for first-time buyers to qualify for a tax credit. The incentive, worth up to $8,000, was set to expire at the end of November. But Congress pushed back the date to April 30 and expanded the program to include current homeowners who move.
The only strong region was the Midwest, where sales rose 21 percent. Sales fell by 21 percent in the South, 9 percent in the West and 3 percent in the Northeast.
New home sales are considered a good barometer of future real estate activity because they reflect sales agreements signed but not yet completed. That's why most economists expect completed sales to decline during the winter months.
While buyers of previously occupied homes were rushing to close deals by the end of November, buyers of new homes were aware early in the month they could shop longer because of the extension of the tax credit. Though completed home resales rose 7 percent in November, most economists expect sales to decline during the winter months without the looming tax credit deadline.
The results show how reliant the housing market has been on government assistance. About 2 million homebuyers have taken advantage of the tax credit of up to $8,000 for first-time buyers, the National Association of Realtors estimated this week. Another 2.4 million are expected to either tap that subsidy or another one for up to $6,500 for current homeowners.
The Federal Reserve is also snapping up $1.25 trillion in mortgage-backed securities to help keep interest rates low.
Despite the poor showing from new homebuyers, the housing market has been recovering from the worst downturn in decades, largely due to the massive infusion of federal assistance. New home sales are up 8 percent from the bottom in January but 74 percent below the peak in July 2005. Compared with November last year, sales were off 9 percent.
The Commerce Department said new home sales hit a seasonally adjusted annual rate of 355,000 last month, off from a downwardly revised 400,000 pace in October.