Economic Growth Prospects Dim in U.S. After Retail Sales, Trade Reports
Growth Prospects Dim With Retail Sales, Trade Reports
Jin Lee/Bloomberg
Consumer spending, which makes up 70 percent of the economy, is being held back by an unemployment rate close to a 26-year high.
Consumer spending, which makes up 70 percent of the economy, is being held back by an unemployment rate close to a 26-year high. Photographer: Jin Lee/Bloomberg
Prospects for U.S. economic growth took a hit this week after reports showed the trade deficit swelled and consumers reined in spending.
Economists at Morgan Stanley reduced their estimate for third-quarter consumer spending following a report showing retail sales rose less than forecast in July. A record jump in the trade gap for June capped figures that indicated the world’s biggest economy grew at least a percentage point less than the 2.4 percent pace the government estimated last month.
The Standard & Poor’s 500 Index slumped 3.8 percent in the five days ended yesterday, the biggest one-week loss in a month, and a surge in Treasuries pushed the yield on the benchmark 10- year note to the lowest level in 16 months on concern the economy will relapse into a recession. Reports this week showing Chinese industrial output cooled and growth in Europe was uneven added to pessimism over the prospects for the global economy, just as the Federal Reserve said the U.S. recovery was weaker than anticipated.
“The data continued to show softening, and it does feel like the third quarter is starting off pretty weak,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. “The bigger issue is whether the momentum slide we’ve seen since the second quarter will be arrested.”
Economic woes, including a 9.5 percent U.S. unemployment rate and slow job growth, mean President Barack Obama’s Democratic Party faces a struggle to retain control of Congress, Democratic National Committee Chairman Tim Kaine said in an interview with Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.
Consumer Retrenchment
Purchases at U.S. retailers in July climbed 0.4 percent, figures from the Commerce Department in Washington showed yesterday, compared with a 0.5 percent median increase forecast by economists in a Bloomberg News survey. Excluding auto dealers and gasoline stations, sales dropped 0.1 percent, the second decline in three months.
“This is a modest retrenchment on the part of the consumer,” said Julia Coronado, a senior U.S. economist at BNP Paribas in New York. “This suggests another weak reading on consumer spending” in the third quarter, she said.
Consumer spending, which makes up 70 percent of the economy, is being held back by an unemployment rate close to a 26-year high. An Aug. 12 Labor Department report showing more Americans than estimated filed applications for unemployment benefits last week pointed to further weakness in the job market.
Lower Estimates
J.C. Penney Co., the third-biggest U.S. department-store chain, lowered its profit forecast for the year. The guidance reflects “a conservative approach to what continues to be an uncertain consumer climate, particularly for the moderate consumer,” Chief Executive Officer Myron Ullman said yesterday on a conference call.
Economists David Greenlaw and Ted Wieseman at Morgan Stanley in New York yesterday lowered their estimate for household purchases in July through September to a 2 percent annual pace from 2.3 percent. Consumer spending has averaged 3 percent a year during the past three decades.
“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement after meeting Aug. 10.
The central bank said it will buy Treasuries with proceeds from mortgage securities and set a $2.05 trillion floor on its holdings of government bonds and housing debt to buoy the recovery.
Trade Deficit
The U.S. trade deficit widened by $7.9 billion in June, the most since record-keeping began in 1992, to $49.9 billion, a report from the Commerce Department showed. Exports posted the biggest decline since April 2009.
The figures prompted some economists to reduce estimates for second-quarter growth. David Resler, chief economist at Nomura Securities International Inc. in New York, said the economy probably grew at a 1.3 percent pace.
Investors should prepare for “major structural changes” as the global economy shifts to slower growth, Mohamed A. El- Erian, chief executive officer at Pacific Investment Management Co. said yesterday in a radio interview on “Bloomberg Surveillance” with Tom Keene.
Pimco’s investment strategy has been to move to higher- quality assets and pursue investments in different parts of the world, El-Erian said.
China’s industrial output rose the least in 11 months and retail sales growth eased, government reports showed, adding to signs the world’s No. 3 economy is cooling.
The Bank of England is also predicting slower growth for Europe’s second-largest economy. The U.K. economy may peak at a 3 percent annual pace instead of the 3.6 rate forecast in May, Bank of England Governor Mervyn King said this week.
Germany is driving the euro zone’s economy while peripheral nations falter. Germany, which grew 2.2 percent last quarter, was responsible for almost two-thirds of the bloc’s expansion even though it only makes up about one quarter of the economy.
In Spain, where government is pushing through the toughest austerity measures in three decades, the economy expanded a less-than-forecast 0.2 percent. The economy of Greece, the epicenter of the European sovereign debt crisis, contracted 1.5 percent.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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