Factory output in the U.S. central Atlantic region contracted again this month and new home sales fell to a five-month low in July, adding to signs of a weak second-half economic expansion at best.

The Richmond Federal Reserve Bank said on Tuesday its composite index of factory activity in its district fell to minus 10 as new orders and shipments weakened sharply after a minus 1 in reading in July.

Separately, the Commerce Department said new single-family home sales slipped 0.7 percent to a seasonally adjusted 298,000-unit annual rate, the lowest since February. June's sales pace was revised down to 300,000 units from the previously reported 312,000 units.

Economists polled by Reuters had forecast sales at a 310,000-unit rate. In the 12 months through July, new home sales rose 6.8 percent.

The weak factory output and new home sales may add to worries the economy is on the brink of a second recession.

Despite the soft data, U.S. stock prices were higher while prices for Treasury debt were mixed.


Millan Mulraine a senior U.S. macro strategist at TD Securities in New York said manufacturing appears to have run out of steam.

It goes to show that manufacturing activity, which has been one of the few engines of growth over the past few years has stalled, he said.

Data from the Philadelphia Fed last week showed factory activity in the Mid-Atlantic region, which includes eastern Pennsylvania, southern New Jersey and Delaware, also contracted in August.

The Richmond Fed survey covers the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia.

Though so-called hard economic data points to painfully slow growth, the broader stock market tumble and a spreading sovereign debt crisis in Europe have adversely affected sentiment surveys, leading economists to estimate risks of a contraction in economic activity as high as 50 percent.

Housing has been one of the economy's most poorly performing sectors, even though the decline in inventories of homes for sale last month was a hopeful sign.

There (is) very little chance that the housing market will recover in the second half of the year or even the next few years, said Paul Dales, U.S. economist at Capital Economics in Toronto.

The housing market is struggling with banks asking for increased down payments and there are significant structural issues holding back demand.

Plunging share prices in recent weeks have eroded household wealth and driven consumer confidence down, adding to the housing market's woes.

Although new home supply remains lean, sales remain near depressed levels amid stiff competition from an overhang in previously owned homes -- which are selling well below the cost of new construction.

A record low 165,000 new homes were available for sale last month. That compares with about 3.65 million used homes on the market in July, plus properties that are in foreclosure.

Home resales dropped to an eight-month low in July, data showed last week. The lack of healing in the housing market is a key reason why the economy's recovery has been very weak by historical standards.

The Commerce Department report showed the median sales price for a new home fell 6.3 percent last month to $222,000. Compared to July last year, the median price was up 4.7 percent.

July's weak sales pace left the supply of new homes on the market unchanged at 6.6 months' worth.

(Additional reporting by Jason Lange and Glenn Somerville, editing by Neil Stempleman)