US interest rates: Weak data boosts case for another delay from the Fed

Jake Cordell
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Janet Yellen, US Federal Reserve chair
Janet Yellen has kept fingers from the trigger since last December when it comes to interest rates (Source: Getty)

The US has posted another uninspiring set of economic data, suggesting the slowdown in the world's most important economy is set to continue.

Official figures on the manufacturing sector, retail sales and factory prices all came in below expectations this afternoon, just days before the US Federal Reserve is scheduled to vote on whether to hike interest rates for only the second time since the financial crisis.

Consumer spending on goods dropped by 0.3 per cent in August, against expectations for a 0.1 per cent decline, while industrial production dipped by 0.4 per cent against a 0.2 per cent decline.

Ian Shepherdson, chief US economist at Pantheon Macroeconomics, said the figures were "soft, but not disastrous".

Taken together, however, they are just the latest sign of weakness in the US economy, after recent jobs numbers have also disappointed. Analysts had hoped the US would bust out of some unexpectedly poor GDP figures for the first half of the year, where the economy grew by only one per cent on an annualised basis.

Steve Murphy, US economist at Capital Economics, said the data provided "another reason for the Fed to pass on raising interest rates next week."

Factory prices - a measure of inflation - rose by just 0.1 per cent over the year, separate data showed, though experts were having trouble pinning down the exact cause of the slowdown.

"Something seems to have hurt manufacturing ... and we're not yet sure what it was," said Pantheon's Shepherdson. He cited the possibility of a delayed Brexit effect, domestic political worries as the US election approaches, or floods in southern states as potentially hitting the economy. "Whatever it was, we're hopeful it won't last. But, for now, it does not look good."

Read more: Donald Trump attacks the Fed for creating "false economy"

Forecasters have begun to talk more openly about the US approaching the final stages of its economic cycle in recent months. Societe Generale are pencilling in a mild, cyclical recession in the United States within the next two years, while the Economist Intelligence Unit also thinks the US economy will have fits of contraction in 2019.

Financial markets are not expecting the Fed to raise rates when it meets next week, despite signals from some policymakers, including Janet Yellen, that the time to take the federal funds target range above its current 0.25 to 0.5 per cent level is approaching. Depending on any market fallout from November's election, analysts expect a rise in December is more likely, with the probability of a hike around 50 to 60 per cent according to futures prices.

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