New Year euphoria for stocks gives way to US economic fear

(Alliance News) - A soft landing for the US economy in the face of Federal Reserve rate hikes may be a loftier goal than investors thought at the start of the year.

Stocks surged at the turn of the year, but data since, and corporate earnings, have not been very supportive.

The Dow Jones Industrial Average, shipping 0.8% on Thursday afternoon in New York, now lies 0.3% below where it ended last year.

"Yesterday's string of dismal US economic data delivered a material blow to those still thinking that a soft-landing was possible," Bannockburn Global Forex analyst Marc Chandler commented.

Economic activity in the US remained lukewarm in recent weeks, said a report published by the Federal Reserve on Wednesday, with expectations of "little growth in the months ahead."

"Overall economic activity was relatively unchanged" since the last beige book survey released in November said the latest report.

Five of the Fed's 12 districts saw "slight or modest" gains in activity while six reported either no changes or slight declines, according to the report, which surveys firms and other contacts. One district saw a significant decline.

"Contacts generally expected little growth in the months ahead," the report added.

While some retailers reported better sales over the holiday period, others said that high inflation continued to weigh on consumers, particularly those of low- and moderate-income households.

Those findings came after numbers showed US retail sales fell 1.1% on-month in December, worse than market estimates of a lesser 0.8% decline. They had fallen 1% in November from October.

Figures on Thursday, however, suggested the US labour market remains strong, despite a spate of job cuts in the technology sector, including plans announced on Wednesday by Microsoft Corp to cut 10,000 jobs.

US initial claims for unemployment insurance in the US fell in the most recent week, according to the Department of Labor.

In the week ending January 14, the advance figure for seasonally adjusted initial claims was 190,000. This represented a decrease of 15,000 from the previous week's unrevised level of 205,000.

Market consensus, as cited by FXStreet, had expected there to be 214,000 new claims in the most recent week.

Those figures were unable to lift the mood on Thursday, however.

Analysts at Oxford Economics commented: "A narrow path to a softer landing is still feasible based on the strength of the labour market, but the danger of a debt ceiling crisis is adding downside risks for the economy."

The US Treasury began taking measures Thursday to prevent a default on government debt, as Congress heads towards a high-stakes clash between Democrats and Republicans over raising the borrowing limit.

Such "extraordinary measures" can help reduce the amount of outstanding debt subject to the limit, currently set at USD31.4 trillion, but the Treasury has warned that the tools would only help for a limited time – likely not longer than six months.

The world's biggest economy could face severe disruption, with Republicans threatening to refuse the usual annual rubber-stamping of an increase in the legal borrowing limit, potentially pushing the US into default.

By Eric Cunha, Alliance News news editor

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