U.S. Economy on Mend, Housing Poised for Rebound, LaVorgna Says

Oct. 6 (Bloomberg) -- The U.S. economy is on the mend and housing is poised for a rebound, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York.

“The momentum in the economy is moving forward,” LaVorgna said today in an interview on Bloomberg Radio.

Housing is close to a turnaround because “we have had a tremendous improvement on inventories,” he said. “We are much closer to a housing bottom than many believe.”

Combined sales of new and existing homes were up 15 percent in August from January, when they reached the lowest level since comparable records began in 1999, according to figures from the Commerce Department and the National Association of Realtors.

The increase in purchases trimmed the number of houses on the market to 3.88 million, the fewest since March 2006.

At the current sales pace it would take 8.5 months to sell all the previously owned homes on the market, compared with 11.3 months in April 2008, the highest level since at least 1999. For new houses, supply dropped to 7.3 months in August, the shortest period since January 2007.

Rising demand is giving homebuilding a boost. Private residential construction climbed 4.7 percent in August from the prior month, the biggest gain since November 1993, according to data from the Commerce Department. Declines in residential construction have trimmed gross domestic product by one percentage point on average since 2006.

Growth Outlook

Economic growth will reach 3 percent next year, “maybe a little more,” LaVorgna said. Economists surveyed by Bloomberg News last month projected the world’s largest economy will expand 2.4 percent in 2010, according to the median estimate.

Core inflation, which excludes food and energy costs, will fall below 1 percent in 2010, and that will open the way for the Federal Reserve to refrain from raising its benchmark interest rate next year, LaVorgna said.