Fresh data cast doubt on U.S. recovery

Fears of a double-dip recession in the U.S. were reinforced on Friday, by a spate of negative economic reports.

On Friday it was announced that the U.S. consumer price index rose just 0.3% in August, meeting expectations, but core CPI fell short of consensus estimates, gaining just 0.1%. On a year-over-year basis, total CPI gained 1.1%, down from the 1.2% gain posted in July.

“All in all, today’s report does not change our view that the period of disinflation in core consumer prices has largely run its course,” writes Peter Newland, senior economist, Barclays Capital. “In our judgment, the chances of outright deflation in the core CPI remain small.”

James Marple, senior economist, TD Bank Financial expects the U.S. inflation rate to hover around 0.8% for the remainder of 2010, edging up to 1.0% over the course of 2011.

“At this rate of economic growth, the unemployment [rate] is likely to remain elevated and excess capacity will continue to limit inflationary pressures in the United States,” he writes. “With inflation remaining benign, the pace of job growth is likely to be the key factor influencing both fiscal and monetary policy decisions over the next year.”

Economists may see a slow recovery taking shape, but the feeling on the street is far less upbeat.

Consumer sentiment slipped in September, according to the monthly report from Reuters and the University of Michigan. The reading fell to 66.6, the lowest it’s been in a year. The August reading had been 68.9, and most forecasters had expected an improvement to 70.0 for September.

Survey respondents were relatively confident about current conditions, with that sub-index reading edging higher by 0.1 point to 78.4, but the main deterioration was in future expectations, which fell from 62.9 in August to 59.1 in September.

Translation: Consumers see bad times ahead. And its easy to see why. An improvement in initial jobless claims, released Thursday, found there were still 450,000 new applications for benefits in the week ending September 11 alone.

That feeling of gloom was no doubt also fueled by rising residential foreclosures in the prior month.

It was revealed on Thursday that American foreclosures jumped 25% on a year-over-year basis in August, as lenders repossessed more than 95,000 homes. That’s the largest number of foreclosures in a single month since the recession began in December 2007.

To date, more than 2.3 million American homes have been foreclosed since the recession started.

(09/17/10)