(Bloomberg) — The US economy may head into 2007 in weaker-than-expected shape after reports showed October new- home sales fell for the first time in three months and stockpiles at companies jumped last quarter.House purchases declined 3.2 percent to an annual pace of 1.004 million from a 1.037 million rate in September that was slower than previously reported, the Commerce Department said in Washington. Rising inventories were responsible for an upward revision in economic growth to 2.2 percent last quarter, the department also reported.

The numbers show few signs of the scenario sketched by Federal Reserve Chairman Ben S. Bernanke, who predicted yesterday that growth will pick up in the coming year and that inflation remains a greater threat than a slackening expansion. The Fed said today that most of its districts “reported moderate growth” in October and early November.

“It’s not very promising for next year,” said Chris Low, chief economist at FTN Financial in New York. “The damage we’ve already seen in housing will spread to further weakness in the economy.”

The supply of unsold homes at the current sales pace rose to 7 months’ worth. New-home sales had been expected to decline to a 1.049 million rate from September’s originally reported 1.075 million pace, according to the median of 64 forecasts in a Bloomberg News survey of economists. The median price of a new home rose 1.9 percent to $248,500 in October from $243,900 a year earlier, today’s report showed.

Gross domestic product increased at an annual pace of 2.2 percent in the third quarter, the slowest this year, as home construction registered the biggest decline in 15 years. The government raised its estimate for economic growth from 1.6 percent, in part because of the increase in inventories.

Incomes and a measure of inflation watched by the Fed were both revised lower by the Commerce Department, while corporate profits rose.

Before-tax earnings adjusted for the value of inventories and capital depreciation, known as profits from current production, rose $66.2 billion, or 4.2 percent, compared with a 1.4 percent gain in the second quarter.

The GDP figure is the second of three estimates of growth that the Commerce Department will publish. The economy may not gain much momentum heading into 2007 as housing remains in a slump and manufacturers trim production to pare stockpiles.

“The composition of the revision is not all that inspiring,” said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. “The upside surprise today is more likely to take away from the fourth quarter than to add to it.”

The Fed continues to characterise economic growth as “moderate.” The central bank said today, in its regional survey known as the beige book for the colour of its cover, that consumer spending increased in most districts in October and early November “despite continuing softness in automobile and housing-related sales.”

Manufacturing was “positive overall” and the real estate market “continued to be strong in a few specific markets,” the Fed said. Bonds fell after the Fed report, surrendering gains made earlier today following the housing figures. The yield on the benchmark ten-year note rose almost two basis points to 4.52 percent at 3.30 p.m. in New York.

Housing starts tumbled almost 15 percent last month to the lowest level in six years, and building permits, a gauge of future construction, fell for a ninth straight month, a Commerce Department said on November 17.

“The slowing pace of residential construction is likely to be a drag on economic growth into next year,” Bernanke said in a speech yesterday in New York. At the same time, he said the economy will recover and that the Fed is scrutinising labour costs for signs companies are passing them on to customers.

The Fed has kept interest rates unchanged for the last three meetings after raising them 17 straight times to stifle inflation. Bernanke added that the economy is expanding “at a solid pace” outside of housing and the auto industry.

New-home sales fell in three of four regions. They dropped 39 percent in the Northeast, 5.6 percent in the Midwest and 1.7 percent in the South. They rose 3.2 percent in the West.

New home sales account for about 15 percent of the market, and previously owned homes make up the rest. The National Association of Realtors forecasts a 17.3 percent drop in new- home sales this year to 1.06 million, which would still be the fourth-highest on record.

A report yesterday from the Realtors showed sales of previously-owned homes unexpectedly rose in October for the first time in eight months. Sales edged up 0.5 percent to an annual pace of 6.24 million. The median selling price fell 3.5 percent from October 2005, the biggest year-over-year decline on record.

New-home sales may be a more timely barometer of the housing market because they are recorded when a contract is signed. Most sales of existing homes are recorded when a contract closes and reflect buying decisions made months earlier.

The government’s personal consumption expenditures price index, a measure of prices tied to consumer spending, rose 2.4 percent, compared with a 2.5 percent rise reported last month and a 4 percent second-quarter gain. The index excluding food and energy, a measure favoured by Fed policy makers, rose at a 2.2 percent annual rate. The government reported a 2.3 percent third-quarter rise last month, and a second-quarter increase of 2.7 percent. The government yesterday also revised personal income figures for the second quarter. Wages and salaries rose at an annual rate of 0.7 percent from April through June, down from a previous estimate of 7.7 percent. The measure grew 13.3 percent in the first quarter.

Business inventories rose at a $58 billion annual rate, compared with a $50.7 billion pace of increase previously reported and a $53.7 billion rate of increase in the prior quarter. Inventories added 0.16 percentage point to growth in the third quarter. The government previously estimated that inventories subtracted from economic growth.

“Inventories are too high and there will have to be some sort of correction,” said Ethan Harris, chief US economist at Lehman Brothers Holdings Inc. in New York. “The fourth quarter is going to look very similar to the third quarter. Housing will be an even bigger negative, but the consumer will get a nice little kick from the drop in energy prices.”