US Data Hit Bush's Hopes

The United States economy stumbled again yesterday with the release of crucial retail sales, consumer confidence and inflation data that were uniformly worse than analysts had been expecting.

According to the US commerce department, retail sales rose by 0.6% in August, well below Wall Street forecasts of 1.4%. In July, retail sales grew at a far brisker rate of 1.3%.

The figures will be a blow to the White House - consumer spending accounts for two-thirds of US economic activity and the Bush administration hoped that tax cuts and rebate cheques arriving in the post would give the limping economy the boost it needed.

Consumer sentiment dipped in early September as the nascent recovery continued to fail in creating jobs.

A separate report on US wholesale prices, an indicator of inflation, showed an increase of 0.4% last month, higher than most analysts had hoped for; the growth, however, was largely due to volatile food and energy prices.

The reports combined to weigh on Wall Street in early trading. The Dow Jones index of leading shares fell by as much as 70 points shortly after the open of trading but rallied in the late morning. It was 50 points lower at 9,408 approaching noon.

The data, suggesting that the US economy had still not begun a sustained recovery, pushed the dollar lower against the euro. The euro, already trading at a four-week high, was up by a further 0.4% in early trade on Friday at $1.1253. Sterling hit a month high against the dollar, climbing half a percentage point to $1.6035.

Some analysts, however, said the negative reaction had been overdone. "Six tenths of a per centage point is good healthy rate of increase, no matter how you look at it," said Doug Lee, of consulting firm Economics.

Sentiment was not helped by Oracle, the world's second largest software firm, which reported disappointing sales. Oracle reported a 28% leap in first-quarter profits to $342.7m, but the improvement was largely due to cost cutting. Revenues were just 2% higher and sales of new software licences, a closely watched measure of business momentum, actually fell by 7%.

Shares in the company were trading 5.6% lower, at $12.25.

The economic data will be closely examined by US Federal Reserve policymakers, who meet next Tuesday to review interest rates.

There have been increasing doubts about the sustainability of the economic recovery in the US as recent employment data have shown a lack of new jobs being created. A weak labour market could put further pressure on confidence and spending.

The closely observed University of Michigan's consumer sentiment index showed a drop to 88.2 from 89.3 in August, defying expectations for a rise to 90.

Excluding sales of motor vehicles and parts, demand for retail goods rose 0.7% last month. Car dealerships saw sales rise 0.5% after soaring 2.4% in July.

Car sales have been sustained by large incentives and discounting, introduced in the wake of the terrorist attacks on the US two years ago as a means of kickstarting sales.

Analysts have regularly argued that demand will eventually run out of steam, leaving the car industry with falling sales while being saddled with margin-eating incentives.