O'Neill: US economy on 'bumpy road to recovery'

Paul O'Neill, the US Treasury Secretary, yesterday warned the road to economic recovery would be "bumpy" as new figures showed growth had slowed across the industrialised world.

He told business leaders he stuck by his forecast that US GDP growth would be between 3 per cent and 3.5 per cent by the end of the year. "Today it looks like we are on the road to recovery – a bumpy road, but the right road nonetheless," he told the Portland Chamber of Commerce in Maine.

"Key economic fundamentals such as inflation, real wages, productivity, interest rates, business profits, and the housing sector are all strong. But to a lot of folks out there watching, it doesn't feel like a recovery yet."

The administration was given a boost yesterday by official figures showing businesses added to their stocks in July for the third month in a row. It provides fresh evidence that the inventory rundown of last year, which acted as a drag on growth as companies emptied their stockrooms rather than increased production, is finally ending.

It also follows Friday's figures showing retail sales jumped 0.8 per cent last month, greater than analysts had forecast and after rises of 1.1 per cent in July and 1.4 per cent in June.

But Mr O'Neill's remarks coincided with the first forecasts for economic growth in the second quarter of the year by the Organisation for Economic Co-operation and Development that showed a slowdown. The fall – from 0.7 per cent in the first quarter to 0.5 per cent in the second – was driven by a sharp slowdown in North America, where US growth crumbled to 0.3 from 1.2 per cent and Canada slowed to 1.1 from 1.5 per cent.

Meanwhile the financial markets gained some respite yesterday after recording their third successive weekly losses on both sides of the Atlantic.

However analysts warned a recovery was not certain and the City's chief regulator last night attacked the behaviour of analysts at the major investment banks.

Sir Howard Davies, the chairman of the Financial Services Authority, said there was "systematic bias" in analysts' recommendations. "Where an analyst works for an investment bank with a corporate relationship with the company she is analysing she is – oddly enough – twice as likely to recommend it as a 'buy' as she is if there is no such relationship," he told the Lord Mayor's banquet.