Disappointing US figures dent recovery hopes

Click to follow
The Independent Online
FEARS OF a further slackening in the US economic recovery were fuelled again yesterday by reports of a renewed slide in retail sales last month and a substantial second-quarter widening in the trade deficit.

The disappointing economic news brought to a halt a Wall Street rally triggered on Monday by the German interest rate reduction and offered fresh grist to the Democratic presidential campaign of Bill Clinton.

There was renewed speculation that the combination of the German rates cut and the additional evidence that the recovery was stumbling would prompt the Federal Reserve to heed calls by the Bush administration to lower US rates.

Retail sales in August tumbled by 0.5 per cent, the poorest showing since March and worse than economists had predicted. With consumer spending representing two-thirds of all economic activity, any hope of a sustained recovery will be lost until private consumption picks up.

At the same time, the trade deficit reached dollars 17.8bn in the April-June period, a significant leap on the dollars 5.9bn gap recorded for the first quarter and the worst single-quarter performance for 18 months. Analysts now fear that the deficit will balloon further in the remainder of the year, perhaps even to dollars 50bn.

Few economists expect much improvement in the outlook between now and the election on 3 November, with a slew of equally bleak statistics likely to be issued in the last weeks of the election campaign, including, crucially, further evidence of lengthening unemployment queues.

Even the latest price index figures also released yesterday were disappointing, showing a 0.3 per cent rise in inflation in August. This is slightly higher than had been expected, thanks to a steep 8.6 per cent increase in the prices of fruit and vegetables.

If continued over 12 months, the August increase would translate into an annual inflation rate of 3.5 per cent, higher than the 2.9 per cent rate extrapolated from the first six months of the year.