[Mb-civic] US growth hit by spending slump BBC

[Michael Butler]

 US growth hit by spending slump
 US economic growth has slowed more than expected in the three months to
June. 

 Record oil prices acted as one of the main brakes in the second quarter,
boosting raw material and energy costs and acting as an unofficial tax.

 The Commerce Department said the world's biggest economy grew at an 3%
annual rate in the second quarter, down from 4.5% in the first.

 Analysts had predicted a figure of closer to 3.6%. The dollar fell against
most major currencies on the news.

 Hands in pockets? 

 John Lonski, an economist at Moody's Investors Service, said that what
really stood out for him was the "shockingly small increase" in shopping
activity.

 The uncertainty on consumption will only reinforce a gradual rate hike path
  Stephen Gallagher, an economist at Societe Generale
 

 Consumer spending rose by 1% in the three month period, down from the surge
of 4.1% in the previous quarter.

 "This report shows that the second quarter was a soft patch for the US
economy," said Alex Beuzelin, a strategist at Reusch International.

 Inflation, meanwhile, rose to 3.3% in the period, underlining the fact that
energy prices had jumped.

 The core rate, which strips out volatile factors such as food and energy
prices, increased at a more sedate 1.8%.

 Cheap money 

 Price increases were given as one of the main reasons behind the US Federal
Reserve's interest rate hike last month.

 Analysts said that the weakness of consumer spending backs up the central
bank's stated plan of increasing borrowing costs only slowly.

 "The uncertainty on consumption will only reinforce a gradual rate hike
path despite the high inflation reading", said Stephen Gallagher, an
economist at Societe Generale.

 Alan Greenspan, chairman of the Federal Reserve, said earlier this month
that the US economy looked stable, despite an expected slowdown in the
second quarter.

 Mr Greenspan added that economic trends this year had been "quite
favourable".

 Bright spots 

 Friday's report did contain some positive news, with analysts pointing to a
jump in corporate spending during the quarter as companies continued to
build inventories.

 Business fixed investment, as it is called, surged by an annual rate of
8.9% from 4.2%.

 "The good news in the report is that we did have a strong rebound by real
business investment spending, which bodes favourably for hiring activity,"
said Moody's Mr Lonski.

 On top of that, a separate report by the Commerce Department showed that
the recession in the US during 2001 was the shallowest ever.

 There also has been evidence that economic conditions have improved since
the end of June, with many observers predicting an even better end to the
year.

 There was a modest improvement in consumer confidence and that bodes well
for spending  
  Rick Egelton, Bank of Montreal

 A closely-watched survey of consumer confidence by the University of
Michigan ticked higher in July, beating forecasts, Reuters reported on
Friday.

 The index rose to 96.7 in July from 95.6 in June, according to the news
agency's sources who saw the subscription-only report. Economists had
forecast a rise to 96.5.

 "There was a modest improvement in consumer confidence and that bodes well
for spending," said Rick Egelton, an economist at Bank of Montreal.
 Story from BBC NEWS:
 http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/3940039.stm

 Published: 2004/07/30 14:40:49 GMT

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