US August data modest

Retail sales and industrial output both slowed in the US in August.

Shop sales grew 0.3% in August, below market expectations of a 0.5% rise and below July’s 0.5% increase, but excluding car sales, which are at their strongest in two years, retail spending actually declined 0.4% in August.

Industrial output rose 0.2%, the slowest pace in the past three months; output at U.S. factories fell 0.3% last month, the first decline in manufacturing after five straight increases.

Last month the economy also shed 4,000 jobs. The August figure from the Department of Labor came as a surprise, because economists had anticipated data showing an increase of 110,000 jobs. The last time the US economy shed jobs was four years ago in August 2003 when the total number employed fell by 42,000. The Department of Labor also cut its estimates for the number of new employees hired in June and July by a total of 81,000.

Meanwhile, figures from the University of Michigan showed that consumer confidence remains close to a yearly low.

A piece of more positive economic news: the US balance of payments deficit, which has been a factor in the weakness of the dollar, narrowed to $190.8 billion in the second quarter from $197.1 billion in the previous three months. However, this may be partly a consequence of a slowing economy and more expensive imports. The financial system is working.

We expect data to continue to be modest, but this is appropriate and will equalise the imbalances in the US economy, allowing a natural adjustment there and globally. Importantly, these changes must be underpinned by a changing culture, one which saves more and spends on infrastructure, health and education as much as convenience consumption.

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