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Further signs of US economic pain Further signs of US economic pain
(about 1 hour later)
Retail sales and industrial output both slowed in the US last month, as the economy felt the strain from the housing slump and credit squeeze.Retail sales and industrial output both slowed in the US last month, as the economy felt the strain from the housing slump and credit squeeze.
Shop sales grew 0.3% in August, below market expectations of a 0.5% rise and below July's 0.5% increase.Shop sales grew 0.3% in August, below market expectations of a 0.5% rise and below July's 0.5% increase.
Industrial output rose 0.2%, the slowest pace in the past three months.Industrial output rose 0.2%, the slowest pace in the past three months.
Analysts said the figures reinforced the case for the Federal Reserve to cut interest rates when it meets to decide on borrowing costs next week.Analysts said the figures reinforced the case for the Federal Reserve to cut interest rates when it meets to decide on borrowing costs next week.
US stock markets fell on the news, the Dow Jones index dropping 76 points to 13,349 just after opening in New York.US stock markets fell on the news, the Dow Jones index dropping 76 points to 13,349 just after opening in New York.
Eyes on the FedEyes on the Fed
When it meets on 18 September, the Fed will be under enormous pressure to act to lower the cost of consumer borrowing.When it meets on 18 September, the Fed will be under enormous pressure to act to lower the cost of consumer borrowing.
Many believe such a move would limit the wider economic fallout from the current turbulence in financial markets triggered by the crisis in the sub-prime mortgage market.Many believe such a move would limit the wider economic fallout from the current turbulence in financial markets triggered by the crisis in the sub-prime mortgage market.
The Fed will be concerned about consumer spending drying up Richard Huber, AG Edwards & SonsThe Fed will be concerned about consumer spending drying up Richard Huber, AG Edwards & Sons
Recent indicators have pointed to a slowdown in economic activity, with the economy shedding 3,000 jobs last month.Recent indicators have pointed to a slowdown in economic activity, with the economy shedding 3,000 jobs last month.
The latest figures showed output at U.S. factories fell 0.3% last month, the first decline in manufacturing after five straight increases.The latest figures showed output at U.S. factories fell 0.3% last month, the first decline in manufacturing after five straight increases.
So far, consumer spending has remained resilient, but excluding car sales, which are at their strongest in two years, retail spending actually declined 0.4%. So far, consumer spending has remained resilient, but excluding car sales, which are at their strongest in two years, retail spending actually declined 0.4% in August.
Most leading analysts have reduced their forecasts for economic growth for the rest of the year. Meanwhile, figures from the University of Michigan showed that consumer confidence remained close to a yearly low.
Most leading analysts have reduced their forecasts for economic growth for the rest of the year, concluding that the housing contraction will drag on the wider economy.
'Chinks in armour''Chinks in armour'
The latest figures have sharpened calls for a rate cut. Analysts said the key question was whether policymakers would opt for a quarter or half-point reduction.The latest figures have sharpened calls for a rate cut. Analysts said the key question was whether policymakers would opt for a quarter or half-point reduction.
"The Fed will most likely implement a quarter-point cut," said Kevin Flanagan, fixed income strategist at Morgan Stanley, adding that recent evidence pointed to "some chinks in the armour of the economy"."The Fed will most likely implement a quarter-point cut," said Kevin Flanagan, fixed income strategist at Morgan Stanley, adding that recent evidence pointed to "some chinks in the armour of the economy".
Manufacturing is under pressure
But some experts believe more drastic action is required to restore market confidence.But some experts believe more drastic action is required to restore market confidence.
"With August employment weak and retail sales down, the Fed will be concerned about consumer spending drying up," said Richard Huber, an economist with AG Edwards & Sons. "With August employment weak and retail sales down, the Fed will be concerned about consumer spending drying up," said Richard Huber, economist with AG Edwards & Sons.
In a piece of more positive economic news, the US balance of payments deficit narrowed to $190.8bn in the second quarter from $197.1bn in the previous three months.
The large current account deficit - the broadest measure of US trade with the rest of the world - has been a major factor in the weakness of the US dollar in the past year.