Gloomy American data fuels recovery doubts

Julian Harris
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SHOCKINGLY negative economic data rattled markets in New York yesterday, adding to an ultra-bearish day for equities.

Claims for US unemployment benefits rose; home sales dropped; inflation picked up; and a Philadelphia factory index collapsed to worse than a two year low.

The gauge of factory activity in the Mid-Atlantic region fell off a cliff, printing minus 30.7 in the index for August, from a positive reading of 3.2 in July. Economists had expected a reading in positive territory.

“There are lots of phrases you could use to describe the figures, none of them printable,” said Drew Matus of UBS. “It was a very weak report.”

Throughout the US, the number of people joining the dole queue rose by 9,000 to a seasonally adjusted 408,000. In the week ending 13 August, 7.34m Americans were claiming unemployment benefit.

The ailing US housing market also appears to be stuck in the mud, with existing home sales unexpectedly falling by 3.5 per cent in July, compared to June – considerably worse than expectations.

And despite the apparent economic downturn, prices spiked in July, with the consumer price index (CPI) rising 0.5 per cent compared to the previous month.

The annual rate of inflation (CPI) held up at 3.6 per cent. Strong price pressures could prevent the Federal Reserve from engaging in a further round of quantitative easing “until early next year”, Capital Economics said in a note.

Meanwhile, weak economic prospects throughout the world have seen American mortgage rates tumble to historic lows, as investors turn to bonds that guide loans for house purchase, the state-backed lender Freddie Mac said yesterday.