US economic doubts set to worry stock markets
GLOBAL stock markets were today braced for further volatility amid mounting fears that the US economy is running out of steam.
European markets closed lower and leading American shares were sold off as US Commerce Department data showed that disposable incomes – money left over after taxes – fell for the first time since January. The UK stock market was closed for the Bank Holiday.
Economists also expect US manufacturing activity to have tapered off in August for a fourth straight month and the country’s services sector to have slowed, fuelling fears that the world’s biggest economy was stagnating following a raft of recent downbeat economic data including poor housing sales.
The latest signs of a US slowdown, which overshadowed a rise in consumer and business confidence in the eurozone in August, could increase the pressure on Federal Reserve chairman, Ben Bernanke, to act after he said it would ease policy if the outlook deteriorated significantly. This could mean more “quantitative easing” – buying billions of dollars of long-term assets such as Treasury bonds to try to stimulate the economy.
It is feared American employment figures due this Friday, a key indicator on the US economy, will show low job creation by private-sector employers in August.
One US strategist said: “Personal income is important because the average consumer is really struggling with a lot of debt. The pessimism in the market has become pretty acute.”
Koen De Leus, economist at KBC Securities, said of Bernanke’s comments: “That sounds like desperation. They have done everything to save the economy, but it is faltering again. The US data are going to be disappointing.”
By contrast, the European Commission’s economic sentiment indicator matched a two-year high, led by Germany, although some economists remained sceptical about whether the eurozone could embark on a self- sustaining recovery if America continues to falter.
ING economist, Martin van Vliet, said: “Beneath the surface not all is well. Production expectations of industrial firms edged lower and the index measuring consumers’ willingness to make major purchases over the next 12 months remained well below its long-term average.
“This raises question marks as to whether improved consumer confidence will translate into significantly higher consumer spending – we have our doubts.”
The cautious outlook was shared by the British Chambers of Commerce, which raised its expectations for UK GDP growth for this year from 1.3 per cent to 1.7 per cent and next year from 2 per cent to 2.2 per cent, but warned that the pace of growth would slow sharply over the medium-term as the coalition Government’s deficit-reduction measures kick in.
BCC director general, David Frost, said: “There must be a relentless focus on ensuring that business is able to deliver growth and create employment. We need policies that rebalance the economy towards wealth-creating businesses, and enable the private sector to invest, export and create new jobs.
“Failure to get this right poses the biggest risk to recovery,” he added.
