Tags: Economic | Recovery | Weak | Year

Economic Recovery Looking Weak for Rest of Year

Tuesday, 03 Aug 2010 02:47 PM

U.S. consumer spending and incomes were flat in June while the index for pending sales of previously owned homes fell to a record low, implying an anemic economic recovery for the remainder of this year.

The reports on Tuesday showed growth assumed a more sluggish tone in the last months of the second quarter, setting up the July-September period for a lackluster performance. Spending had edged up 0.1 percent in May, the Commerce Department said, and analysts had expected a matching gain in June.

A report from the National Association of Realtors showed the group's Pending Home Sales Index, based on contracts signed in June, tumbled to a historic low of 75.7 from 77.7 in May.

Markets had expected the index to rise 0.6 percent.

"I think it's more evidence of the economy being a little bit slow right now. With GDP last week, the second-quarter is a little bit slower than previously expected," said Giri Cherukuri, head trader at OakBrook Investments in Lisle, Ill.

U.S. stock indexes fell on the data, while prices for safe-haven Treasury debt prices rose. The U.S. dollar fell against the Japanese yen.

On Monday, Federal Reserve Chairman Ben Bernanke said consumer spending should pick up in coming quarters as income rises and credit conditions improve. Bernanke said that should help sustain the recovery, even as a lift from fiscal stimulus and restocking of inventories by businesses fades.

Sluggish consumer spending contributed to a slower 2.4 percent economic growth pace in the second quarter, government data showed on Friday. The economy expanded at a 3.7 percent rate in the first three months of this year.

The economy is crawling out of its longest and deepest recession since the 1930s. Although it has now grown for four straight quarters, the recovery has been tepid by historical standards, making little impact on stubbornly high unemployment.

Another report from the Commerce Department showed new orders received by U.S. factories dropped 1.2 percent. That was the second straight monthly decline for factory orders and was worse than market expectations for a 0.5 percent fall.

Manufacturing is leading the economy's recovery, but the sector has in recent months displayed signs of exhaustion. Data on Monday showed manufacturing activity slowed in July for a third straight month amid a pull back in orders.

Treasury Secretary Timothy Geithner on Tuesday warned the unemployment rate could rise for a couple of months before subsiding.

"It's possible you're going to have a couple of months where it goes up," Geithner said on ABC's "Good Morning America." "But what we expect to see ... is an economy that's gradually healing. Of course we want to do what we can to reinforce that process because it's not growing back as quickly as we'd like."

The unemployment rate is currently at 9.5 percent.

The Fed's policy-setting committee meets next week and U.S. central bank officials are debating whether further steps are needed to bolster the economy as the recovery increasingly shows signs of faltering.

"We're still dealing with a stunningly high unemployment rate and very little job growth so it shouldn't be much of a surprise that spending patterns are looking soft," said Tom Porcelli, U.S. economist at RBC Capital Markets in New York.

In June, spending adjusted for inflation rose 0.1 percent after gaining 0.2 percent in May. Real spending on services edged up 0.1 percent, while spending on goods rose 0.2 percent, the Commerce Department said.

Personal income was flat after increasing 0.3 percent in May. It was the first time since September that incomes had not risen. Markets had expected income to rise 0.2 percent in June from a previously reported 0.4 percent rise in May.

Real disposable income increased 0.2 percent after rising 0.4 percent the prior month. The saving rate was 6.4 percent, the highest since June last year, from 6.3 percent in May.

Savings rose to an annual rate of $725.9 billion, the highest level since June last year. The report also showed the personal consumption expenditures price index, excluding food and energy, rising 1.4 percent in the 12 months to June. That was the slowest increase since September.

The index, a key inflation measure monitored by the Federal Reserve, rose 1.5 percent in May.

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U.S. consumer spending and incomes were flat in June while the index for pending sales of previously owned homes fell to a record low, implying an anemic economic recovery for the remainder of this year. The reports on Tuesday showed growth assumed a more sluggish tone in...
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2010-47-03
Tuesday, 03 Aug 2010 02:47 PM
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