U.S. home sales near 8-1/2-year high, brighten outlook

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. home resales rose to a near 8-1/2-year high in July and factory activity in the mid-Atlantic region picked up this month, fresh signs of steady economic growth that likely keeps the Federal Reserve on track to raise interest rates this year.

While other data on Thursday showed a slight increase in the number of Americans filing new applications for unemployment benefits last week, the trend remained consistent with strong labor market momentum.

"We continue to expect both economic growth and labor market activity to continue shifting higher, providing the justification for the Fed to begin the normalization in monetary policy in September," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The National Association of Realtors said existing home sales increased 2 percent to an annual rate of 5.59 million units last month, the highest pace since February 2007. Sales were up 10.3 percent from July 2014.

Demand for housing is being boosted by a strengthening labor market. But supply remains tight, pushing up home prices and sidelining first-time buyers, who are a key part of a strong housing market.

Last month, the median price for a previously owned home increased to $234,000, up 5.6 percent from a year ago. Although higher prices could curb sales, they are raising equity for many owners and boosting household wealth.

"The market needs more new homes to be built to continue the momentum, so the trade-up buyers can find their next home and provide inventory for those looking to enter the home buying market," said Bill Banfield, vice president at Quicken Loans in Detroit.

In a separate report, the Philadelphia Federal Reserve said its business activity index increased to 8.3 this month from a reading of 5.7 in July. A reading above zero indicates expansion in the region's manufacturing, which covers eastern Pennsylvania, southern New Jersey and Delaware.

STRONG DATA STREAK

The data added to solid June employment, retail sales and industrial production reports that have suggested the economy got off to a strong start in the third quarter.

Gross domestic product expanded at a 2.3 percent annual pace in the second quarter. A strengthening economy could encourage Fed officials, who are worried about persistently low inflation, to tighten monetary policy this year.

Minutes from the Fed's July 28-29 policy meeting published on Wednesday showed the U.S. central bank upbeat on improving labor market conditions, but worried about tame price pressures.

Economists believe that policymakers' preoccupation with inflation had raised the bar for a September "lift-off" in the Fed's short-term lending rate. Futures markets on Wednesday trimmed bets for a rate hike next month.

U.S. stocks fell for a fourth straight day, with the housing index slipping 0.55 percent. Prices for U.S. Treasuries rose, while the dollar was lower against a basket of currencies.

In a third report, the Labor Department said initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 277,000 for the week ended Aug. 15.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 5,500 to 271,500 last week.

It was the 21st straight week that the four-week average remained below the 300,000 threshold, which is usually associated with a strengthening labor market.

The claims data covered the week that the government surveyed employers for the nonfarm payrolls portion of August's employment report. The four-week average of claims fell 7,000 between the July and August survey periods, suggesting another month of healthy job gains.

"These data show that companies are, for the most part, holding onto labor and reluctant to lay off workers," said John Ryding, chief economist at RDQ Economics in New York.

"The data are for the August payroll survey week and suggest that the trend of solid job creation remains intact."

Payrolls increased by 215,000 jobs in July. So far this year, job gains have exceeded 200,000 in five out of seven months. At a seven-year low of 5.3 percent, the unemployment rate is near the 5.0 percent to 5.2 percent range that most Fed officials think is consistent with full employment.

(Reporting by Lucia Mutikani, additional reporting by Jason Lange; Editing by Paul Simao)