New Home Sales Weak in July; Trade Gap Hits 5 1/2-Year High

Providing more evidence of a sluggish economic recovery, the government reported Monday that new home sales were unexpectedly weak in July, while the U.S. trade deficit in the second quarter rose to a 5 1/2-year high.

New home sales fell 4.5% in the West and 5% across the nation in July from June, the Commerce Department said, as many buyers turned their backs on brand-new houses in the suburbs to snap up bargain-priced older homes closer to their jobs.

The Commerce Department also reported that the U.S. trade deficit widened to $34.39 billion in the second quarter, up 17.3% from the first three months of the year. The huge deficit--which was expected by analysts following dismal monthly data--was the largest quarterly shortfall since 1987, as sluggish economies overseas slowed demand for U.S. exports.

Monday’s reports were “two more ho-hum indicators of a ho-hum economy,� said Martin Regalia, chief economist of the U.S. Chamber of Commerce in Washington. “The economy is just trudging along, taking two steps forward and 1 1/2 steps back.�

The 5% drop in new home sales in July followed a revised 3.3% gain in June.

Analysts said new home sales were hurt by the bargains being offered for older homes. The National Assn. of Realtors said last week that sales for “used� homes rose 5.4% in July, as their median price dipped slightly to $109,200.

Conversely, the median price for a new home in July rose 2.4% to $124,900.

Analysts said the stage for the poor quarterly trade deficit was set nearly two weeks ago, when the Commerce Department said the June trade deficit alone was $12.06 billion--the second-worst in history.