US Growth Prospects Dim After weak retail data

Reports showed trade deficit swelled, consumers spent less

Prospects for the US economic growth took a hit this week after reports showed the trade deficit swelled and consumers reined in spending.

Economists at Morgan Stanley reduced their estimate for third-quarter consumer spending following a report showing retail sales rose less than forecast in July. A record jump in the trade gap for June capped figures that indicated the world’s biggest economy grew at least a percentage point less than the 2.4 per cent pace the government estimated last month.

The Standard & Poor’s 500 Index slumped 3.8 per cent in the five days ended yesterday, the biggest one-week loss in a month, and a surge in Treasuries pushed the yield on the benchmark 10- year note to the lowest level in 16 months on concern the economy will relapse into a recession. Reports this week showing Chinese industrial output cooled and growth in Europe was uneven added to pessimism over the prospects for the global economy, just as the Federal Reserve said the US recovery was weaker than anticipated. “The data continued to show softening, and it does feel like the third quarter is starting off pretty weak,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. “The bigger issue is whether the momentum slide we’ve seen since the second quarter will be arrested.”

Purchases at the US retailers in July climbed 0.4 per cent, figures from the Commerce Department in Washington showed yesterday, compared with a 0.5 per cent median increase forecast by economists in a Bloomberg News survey.