Saturday 18 November 2017

US economic data offers conflicting picture of recovery

Jason Lange

CONTRACTS to buy previously owned US homes fell for the third straight month in August but fewer Americans filed new claims for jobless benefits last week, in conflicting signals on the health of the American economy.

Another economic report shows a worrying decline in consumer prices during the second quarter.

Taken together, the data offers a challenge for the Federal Reserve, which wants to see more solid evidence that the US economy is gaining momentum before it scales back a bond-buying stimulus programme.

The Fed last week flagged a rise in interest rates as a threat to the economy and said that employment and inflation remained too weak.

The National Association of Realtors said its Pending Homes Sales Index, based on contracts signed last month, decreased 1.6pc in August.

The decline, which was steeper than economists had expected, was the latest sign that a sharp rise in mortgage rates has put a real dent in the US housing market recovery.

Contracts fell across most of the country, with gains only in the northeast.

At the same time, labour market data was more positive.

Initial claims for state unemployment benefits dropped 5,000 last week to a seasonally adjusted 305,000, the Labour Department said.

This could bode well for employers adding workers to their payrolls and ease some of the Fed's concerns.

Economists polled by Reuters had expected the number of new claims to rise last week, and the decline fuelled gains in stock prices and yields on US government debt.

The four-week average of new claims, which smoothes out weekly volatility, fell 7,000 to 308,000, the lowest level since June 2007.

In a separate report, the Commerce Department said prices for goods and services purchased by US households fell in the second quarter for the first time in four years.

That suggests demand in the economy is so weak that businesses have little leverage to raise prices.

It was the first decline since the first quarter of 2009, which were some of the darkest days in the course of the 2007-09 recession.

Even stripping out volatile food and energy costs, prices rose at only a 0.6pc rate, also the weakest reading for this so-called core category since early 2009.

"The (price) data therefore look likely to further dissuade policymakers that the economy is ready to withstand any tapering of the Fed asset purchases programme," said Chris Williamson, an economist at Markit.

The same report showed the government holding unchanged its estimate for growth in gross domestic product, a measure of all the goods and services produced in the economy, which expanded at a 2.5pc annual rate between April and June. (Reuters)

Irish Independent

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