Figures call into doubt US recovery

Expectations of a strong rebound in the US economy were called into question yesterday with disappointing reports on retail sales and consumer attitudes.

US retail sales rose in August, but more slowly than expected. Sales by retailers reached $319.2 billion (€290 billion), a rise of 0.6 per cent from the previous month and 5.4 per cent from August 2002, according to the US Commerce Department. The top-line sales figure, however, was only about half of what economists had been expecting.

The second surprise came with a report suggesting that consumer sentiment had edged lower in early September from August levels.

The consumer sentiment index compiled by the University of Michigan fell in its preliminary September reading to 88.2, down from the final reading for August of 89.3. Economists had expected September to be above 90.

The Michigan report's measure of current views on the economy and future expectations also dropped from August levels.

However, in a separate report, producer prices rose in August by a stronger-than-expected 0.4 per cent.

Analysts said the dip in consumer sentiment reflected concerns about the sluggish employment sector.

Economists asked how strong consumer spending might remain in the months ahead, if the employment sector remained sluggish. Monthly payrolls were reported to be down 93,000 in August - far worse than expected - while weekly jobless claims unexpectedly rose.

"The big risk facing the US economy is the lack of job creation," said Mr John Lonski, chief economist at Moody's Investors Service in New York. "You cannot indefinitely sustain a brisk pace of consumer spending without job creation."

Yesterday's reports helped to send investors flocking to bonds and out of stocks by midday on Wall Street. There were also several positive signs in yesterday's retail sales data. Excluding vehicles they rose 0.7 per cent in August - a sign that spending remained healthy, if not as robust as many had hoped.