US economy remains sluggish

US share prices endured a torrid month as a raft of disappointing data threatened to derail the country’s economic recovery.

During August, the S&P 500 index registered a decline of 4.7% and smaller companies were particularly badly hit as investors avoided riskier assets in favour of the perceived safety of government bonds, gold and US dollars.

In a high-profile speech at Jackson Hole, Wyoming, US Federal Reserve chairman Ben Bernanke pledged that the central bank would “do all that it can” to support the country’s economic recovery, and that the Fed is prepared to “provide additional monetary accommodation through unconventional measures” if necessary. The Fed announced a fresh programme of asset purchases during the month in order to support the economic recovery and reduce borrowing costs.

Bernanke warned that economic growth had been too slow and unemployment was too high. According to the Labor Department, US jobless claims reached their highest level since November, stoking concerns the economic recovery might be faltering. The US economy expanded by 1.6%, year on year, during the second quarter of 2010 after growing by 3.7% in the first quarter. The deceleration was caused by slower inventory growth and an expanding trade gap. The trade deficit widened unexpectedly during June as imports increased and exports dropped

At the corporate level, chipmaker Intel reduced its forecast for third-quarter revenue, blaming slower demand for personal computers in mature markets. In this regard, Bernanke noted “investment in equipment and software will almost certainly increase more slowly over the remainder of this year.”

During the month, US motor manufacturer General Motors announced a massive initial public offering (IPO) that will allow the company to start repaying the state funds that were used to stave off bankruptcy in the summer of 2009. The US government holds a 61% stake in the company that the IPO will help to reduce.

US retail sales increased during July by less than expected and the Commerce Department reported a slower-than-expected rise in personal income that did nothing to allay concerns about the strength of the US economic recovery.

On a brighter note, US consumer spending registered unexpectedly robust growth during July. During August, retailers Wal Mart and Home Depot increased their full-year profits forecasts. Meanwhile, the Conference Board’s index of consumer confidence rose to 53.5% during August after falling to a five-month low of 51 during July. The news provided a much-needed boost for investor sentiment at the end of the month