Reuters reported that US consumer confidence hit a near 2 and a half year low in early July 2011 and manufacturing output stalled in June 2011, further frustrating expectations of a quick economic growth rebound in the second half of the year.
Worries about stubbornly high unemployment pushed the Thomson Reuters and University of Michigan's index of consumer sentiment to 63.8, the lowest since March 2009. Economists had expected the index to climb to 72.5 from 71.5 in June 2011.
Separate data from the Federal Reserve showed manufacturing output stagnated last month partly due to supply disruptions in the auto sector related to the earthquake in Japan.
The reports were the latest in a series, including weak retail sales and employment, to suggest the anticipated step up in growth in the second half of the year might not be as strong has initially thought.
Ms Yelena Shulyatyeva, an economist at BNP Paribas in New York, said that "We still expect an improvement in the second half, but the question is how much can we grow? Our view is the rebound is not going to be anything like in the prior cycles because we are growing at a lower potential rate right now."
Fed chairman Mr Ben Bernanke said this week that the US central bank was prepared to act if growth falters further, but made it clear that Fed is not at that point yet. The economy was slammed by a combination of high commodity prices and bad weather, causing growth to slow sharply to a 1.9% annual rate in the first quarter after a brisk 3.1% expansion in the final three months of 2010.
Disruptions to motor vehicle production and still high gasoline prices are expected to have held growth to a pace between 1.5% and 2% in the second quarter. The government will release its initial second quarter gross domestic product estimate on July 29th 2011.
Manufacturing in the second quarter posted its weakest rise since the recession ended in mid 2009. There are indications that manufacturing maintained its weak tone as the third quarter started.
The New York Fed's gauge of factory activity was at minus 3.76 in July from minus 7.79 in June, another report showed. That could suggest that some of the factors weighing on manufacturing are not of a temporary nature.
The decline in consumer sentiment, which came even as gasoline prices have dropped from their peak above USD 4 a gallon in May 2011, does not bode well for consumer spending.
Consumer spending accounts for about 70% of US economic activity and has been constrained by high gasoline prices and a 9.2% unemployment rate. Employers last month added a paltry 18,000 jobs. Bickering over raising the country' debt ceiling is also adding to economic uncertainty.
Stocks on Wall Street gave up much of their earlier gains. Prices for US government debt pared earlier gains after the European Banking Authority said eight banks failed capital stress tests, fewer than what traders had feared.
(Sourced from www.reuters.com)
