US economy shows signs of slowing

Share prices in the US fell during May, dragged down by confirmation of disappointing economic growth, worries over a sluggish labour market and concerns over the US’s budget deficit.

Looking further afield, investors were also preoccupied by the sovereign debt crisis in Europe and, in particular, by fears Greece might default on its debt. Over the month, the S&P 500 index fell 1.4%, while the Dow Jones Industrial Average index fell 1.9%.

The Commerce Department confirmed the US economy expanded by an annualised 1.8% during the first quarter of 2011, compared with growth of 3.1% in the last quarter of 2010. The slower growth was attributed to a rise in imports, lower government spending and lower corporate profits. The Organisation for Economic Co-operation & Development (OECD) expects the US economy to expand by 2.6% in 2011 and 3.1% in 2012.

The US Federal Reserve believes the country’s economy is recovering at a “moderate pace”, despite the deceleration in growth during the first three months of the year. Although inflationary pressures continue to be driven by higher prices for food and fuel, the Fed expects inflation to stabilise in the longer term.

Policymakers pointed to signs of an improving labour market, although the rate of unemployment rose from 8.8% in March to 9% in April. The OECD believes the rate of unemployment in the US will start to ease, but is calling for a “credible” programme of fiscal consolidation to underpin growth.

Growth in consumer spending slowed to 0.4% during April, compared with growth of 0.5% during March. Nevertheless, profits at jeweller Tiffany rose by more than 25% during the three months to April, the group’s sales in Japan falling during March following the Great East Japan Earthquake, but going on to bounce back in April.

Inflation rose at an annualised rate of 3.2% in April, having increased by 2.7% during March. Pricing pressures have continued to place a heavy burden on consumers as wages fail to keep pace with inflation. However, the monthly rate of inflation decelerated slightly to 0.4% during April compared with 0.5% in March, as prices for food and fuel rose more slowly.

Manufacturing output rose for the 21st consecutive month during April, according to the Institute for Supply Management. Although high costs for raw materials are putting manufacturers under pressure, the weakness of the dollar is at least providing a boost for US exports.

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