More grim news

Reuters reports the US data yesterday in pretty grim terms.

The alarm bells of U.S. recession rang louder on Friday as reports showed business activity in the U.S. Midwest plummeted in February and consumer sentiment slumped to a 16-year low.

More grim news poured in from the inflation front, with government data indicating consumers were struggling in January to keep ahead of robust price growth, which remained uncomfortably high by standards normally associated with the Federal Reserve.

The National Association of Purchasing Managers-Chicago said its index of regional business conditions tumbled to 44.5, its lowest since December 2001, from 51.5 in January...

The Reuters/University of Michigan Surveys of Consumers said its main index of consumer sentiment fell to 70.8 in February from 78.4 in January and was the lowest since February 1992...

The Commerce Department said personal spending rose 0.4 percent last month, while personal income increased by 0.3 percent.

When adjusted for inflation, however, spending was unchanged, due largely to rising food and energy costs.

The personal consumption expenditure price index, a key inflation gauge, rose 2.2 percent year-over-year when food and energy items are excluded. This matched the prior month's "core" inflation rate but remained above the Fed's perceived comfort zone, which tops out at about 2 percent.

And it does look like Europe could yet follow the same path. From Bloomberg:

European economic confidence fell more than economists forecast in February on concern soaring food and energy costs will keep inflation at record levels even as the euro's strength threatens to slow economic growth.

An index of executive and consumer sentiment in the euro area declined to 100.1, the lowest since November 2005, from 101.7 in January, the European Commission in Brussels said today...

Overall euro-area inflation accelerated to 3.2 percent from 3.1 percent in December, the highest in 14 years. That matched an initial estimate published on Jan. 31. The core rate of inflation, which excludes energy, food, alcohol and tobacco prices, eased to 1.7 percent from 1.9 percent.

Meanwhile, unemployment in the euro area has held at a relatively low level.

A separate report today showed that euro-area unemployment held at a record low of 7.1 percent in January, which may support consumer spending and help the economy weather the U.S. slowdown. The December reading was revised from an initial 7.2 percent.

That means that the ECB won't be following in the Fed's footsteps in the near future.

"With record-high inflation and record-low unemployment, right now the European Central Bank can't afford to be pre-emptive on rates," said Marco Valli, an economist at Unicredit MIB in Milan. "However, once it will be clear that the downward trend in business sentiment is not temporary, they will be forced to move."