US consumers’ thrift prompts recovery fears

 
Julian Harris
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MARKETS took a hit across the pond yesterday after data revealed that US retail sales have sunk for three straight months, prompting fears over the strength of the recovery.

Despite the old adage to never underestimate the American consumer, retail sales last month fell 0.5 per cent – disappointing analysts who had predicted a small rise.

“The last time US retail sales fell for three months on the trot was late 2008,” Capital Economics noted. “And we know what happened then.”

Stocks dipped both in New York and elsewhere in the world, the dollar lost ground, and the yield on 10-year Treasuries fell to a record low.

The Dow Jones dropped 0.7 per cent in early trading, ending down 0.39 per cent at 12,727.21 despite paring some of its losses during the day.

The yield on benchmark 10-year Treasury notes fell to 1.442 per cent, matching the level set on 1 June, which was the lowest going back to the early 1800s.

Investors will continue to look for hints of further stimulus measures from the Federal Reserve when its chairman Ben Bernanke takes the stand for his latest testimony before congressional panels today and tomorrow. The Fed recently decided to extend its so-called Operation Twist programme, yet resisted more quantitative easing (QE3).

The New York Fed yesterday reported a rise in manufacturing activity for July across the state. Yet the breakdown of the figures ensured that it would remain a blue Monday for US economic data, revealing a worrying decline in new orders. Forward-looking new orders contracted to minus 2.69 in the index, the lowest level since September last year.

Meanwhile separate data from the US Census Bureau showed that manufacturers’ and trade inventories were up 0.3 per cent in May, although sales were down 0.1 per cent.