US economy looks uncertain

Far from being the engine of global growth, in economic terms the US could do nothing right in July. The month started with policymakers gathering to issue dire warnings about the state of the economy.

US Treasury Secretary Timothy Geithner said the world should no longer rely on the US to drive global growth, while Federal Reserve chairman Ben Bernanke suggested the outlook was “unusually uncertain”. Even former Federal Reserve chairman Alan Greenspan weighed in, saying the US risked a double-dip.

Meanwhile the weak economic data came thick and fast, culminating at the end of the month in disappointing GDP growth figures. The US reported annualised growth of just 2.4% in the second quarter of 2010, against expectations of 2.6%. This was largely driven by weakness in consumption growth, which fell to 1.6% from 1.9%.

Economists are suggesting the US could be in real trouble if jobs growth does not start to come through soon. The economy shed 130,000 jobs in July against an estimate of 65,000 and companies – despite their relative strong financial position – are still disinclined to spend.

Elsewhere, new home sales remain sluggish. Consumer prices are still falling – June’s 0.1% drop representing a slowdown from the fall of 0.2% in May – with energy prices the biggest contributor. Retail sales were weak, down 0.5% in June, with falls in the prices of petrol, cars and building materials, though again this was a marginally slower decline than in May. The service sector continued to grow, but at its slowest pace since February.

The Federal Government was also forced to open its overstretched wallet one again, this time to bail out cash-strapped US states. California, for example, has declared a financial state of emergency and the US House of Representatives has now passed an aid package of $26bn (£16.7bn).

Companies have been offering the respite from the gloom and this has been crucial in providing support to markets. Second-quarter earnings have been promising, with many large groups coming in ahead of expectations. The S&P 500 index rose 6.9% over the month, which of the major markets was only topped by the FTSE 100.

The North American Smaller Companies sector remains the second best performing equity sector over the year to date – after the UK Smaller Companies grouping – with the average fund up 5.37%. However, the main North American sector has not fared so well, with the average fund up just 1.45% over 2010. In this time, the top fund has returned 12.4% while bottom fund is down 15.6%.