Fed may be ready for more stimulus but economic weakness mostly lies elsewhere

Another round of quantitative easing may be coming from the Federal Reserve. From Bloomberg on Friday:

Federal Reserve Chairman Ben S. Bernanke, lamenting the suffering caused by unemployment of more than 8 percent and defending his unprecedented actions, made the case for further monetary easing.

“The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant,” Bernanke said today in a speech to central bankers and economists at an annual forum in Jackson Hole, Wyoming.

The case for further stimulus in the US is not clear though. Among data released on Friday, the Institute for Supply Management-Chicago's business barometer fell to 53.0 in August from 53.7 in July and orders for non-defense capital goods excluding aircraft fell 4.0 percent in July.

However, a 54 percent surge in aircraft orders pushed total factory orders up by 2.8 percent last month, the biggest gain in a year. Also, the Thomson Reuters/University of Michigan consumer sentiment index rose to 74.3 in August, a three-month high, from 72.3 in July.

Elsewhere in the world, the economic data on Friday looked weaker.

In the euro area, the unemployment rate was unchanged at 11.3 percent in July, the highest since the data series started in 1995. This is even as inflation accelerated to 2.6 percent in August from 2.4 percent in July.

Germany, the region's largest economy, has not escaped the economic weakness. Retail sales there fell 0.9 percent in July.

Earlier on Friday, Japan had also released several weak economic reports.

The Markit/JMMA Japan manufacturing PMI fell to 47.7 in August from 47.9 in July. Weakness in manufacturing was corroborated by data from the government, which showed that industrial production fell 1.2 percent in July and has been forecast to rise just 0.1 percent in August before falling again by 3.3 percent in September.

Other reports from Japan on Friday showed that core consumer prices were down 0.3 percent in July from the previous year while the unemployment rate was unchanged at 4.3 percent. Household spending rose 1.7 percent in July from a year earlier but declined 1.3 percent from June. Housing starts fell 9.6 percent in July from a year earlier.