Wednesday, 6 August 2008

Fed keeps rates unchanged amid weak economic data

The Federal Reserve left its benchmark interest rate at 2 percent yesterday, hardly surprising in view of continuing weak economic data. From Bloomberg:

The Institute for Supply Management's index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 49.5, from 48.2 in June, the Tempe, Arizona- based group said today. The reading was higher than forecast, though still less than 50, the dividing line between growth and contraction.

But if anything, the economy looks gloomier in Europe. From Reuters/Guardian:

The euro zone PMI for services companies, which range from banks to cafes, fell to 48.3 in July from 49.1 in June, unrevised from the flash estimate and well below the 50.0 mark that separates growth from contraction...

European Union statistics office Eurostat meanwhile said that the euro zone's retail sales declined 3.1 percent yearly, the biggest annual fall since measurements started in 1996 and worse than expected. The figure fell 0.6 percent month-on-month.

It is a similar story in the UK, as reported by Reuters:

The closely-watched Chartered Institute of Purchasing and Supply/Markit PMI index for the services sector, which makes up about three quarters of the economy, ticked higher to 47.4 last month from a seven-year low of 47.1 in June.

But that was the third consecutive reading below the 50 mark that divides expansion from contraction. Business confidence fell to its lowest since the CIPS survey began and employers made hefty cuts to their workforce...

The Office for National Statistics said factory output unexpectedly fell 0.5 percent on the month, the fourth month of declines and the first time it has fallen consistently for that length of time since 2001.

The economy expanded 0.2 percent in the second quarter of this year, according to preliminary ONS data, but statisticians said June's industrial output figures were "a downward drag" and would shave about 0.06 percentage point off the initial reading.

Equity investors were unperturbed, though, with US stocks rallying the most since April and European stocks rising the most in two weeks yesterday.

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