US Growth Prospects Hit by Triple Whammy in July

20 August 2002

The University of Michigan’s monthly index of consumer confidence fell slightly from 88.1 in July to 87.9 in early August. Although consumers reported that their current financial situation had improved slightly in recent weeks, their outlook for the economy six months ahead had become less optimistic.

In another significant indicator, the Commerce Department revealed that new housing construction fell in July from its unusually high year-on-year level of 10%. This marked the second decrease in successive months, warning that the housing sector, a key growth trigger, could be slowing.

In a third dose of less-than-cheery news, the US Labor Department reported Friday that an important inflation measure, its consumer price index, edged up by 0.1% in July from the preceding month. This is partly attributed to large price increases in medical care, bringing annualized consumer price inflation over the past three months to 0.9%.

However, optimists discerned a faint silver lining to the cloud. Inflation was not in evidence save in health care and education – the former more expensive by 0.7% in July (compared with June) and 4.9% (year-on-year), the latter by 0.4% and 6.5% respectively.

According to Atlanta economist and inflation-watcher Donald Ratajczak: “The Fed was right in saying that it was more concerned about a weak economy at this time.” The latest reports infer a reduction in interest rates by the Federal Reserve in the weeks ahead. “It is a virtual certainty,” Ratajczak predicted.

Data sourced from: The Wall Street Journal Online; additional content by WARC staff