US markets closed lower on weak economic data

16 Oct 2014 Evaluate

The US markets closed lower on Wednesday, on account of weak economic data, stocks however recovered from their lowest level of the day before the close. On the economy front, sales at US retailers fell in September for the first time in eight months. Sales at retail outlets dropped a seasonally adjusted 0.3% last month, showing a continued reluctance among Americans to splurge on consumer goods. Retail sales account for about one-fourth of consumer spending, the main engine of US economic activity. Lackluster consumer spending is a chief reason why the recovery that began five years ago is the weakest in post-war history. Sales have risen 4.3% in the past 12 months, about two-thirds the historic growth rate. Manufacturing in the New York region slowed sharply in October, in a worrying signal for the US economy. The New York Fed’s Empire State general business conditions index plunged to 6.2 in October after hitting a near five-year high of 27.5 in the prior month. The drop was much larger than expected.

Separately, US wholesale prices fell slightly in September as inflationary pressure in the nation’s economic pipeline continued to recede. The producer price index dropped a seasonally adjusted 0.1% - the first decline in more than a year - largely because of lower gasoline prices. Over the past year overall producer prices have risen an unadjusted 1.6%, down from 1.8% in August. Business inventories rose 0.2% in August to a seasonally adjusted $1.75 trillion. Sales fell 0.4% in August. The ratio of inventories to sales remained at 1.29 in August.

Meanwhile, the US economy is growing at a modest to moderate pace despite concerns of a global economic slowdown and heavy upsets in financial markets. The Fed’s beige book, a compilation of anecdotal reporting from district banks, says the Fed believes consumer spending, which accounts for about 70 percent of the economy’s output, is improving. Retailers are optimistic about sales through the rest of the year, particularly from tourism, though New York retailers reported weaker sales than from September’s report. Most districts also say their real estate and banking markets are growing as overall employment expands. And though wage growth remains modest, Fed officials say pressures to raise wages within industries such as construction are increasing. The findings are similar to those in the previous beige book released in September, which reported that most wage growth is going to skilled workers.

Moreover, the federal government saw the lowest budget deficit of Barack Obama’s presidency in fiscal 2014, as receipts surged and spending just barely increased. The deficit for fiscal 2014 was $483 billion, 29% or $197 billion less than the shortfall recorded in fiscal 2013. It’s the lowest shortfall since the $459 billion deficit in fiscal 2008 and represents 2.8% of gross domestic product. As a percentage of GDP, the deficit is the lowest since 2007.

Dow Jones Industrial Average lost 173.45 points or 1.06 percent to 16,141.74, Nasdaq was down by 11.85 points or 0.28 percent to 4,215.32, while S&P 500 ended lower by 15.21 points or 0.81 percent to 1,862.49.

The Indian ADRs closed mixed on Wednesday; Infosys was down by 0.32%, HDFC Bank was down by 0.24% and ICICI Bank was down 0.09%. On the other hand, Tata Motors was up 0.20% and Dr. Reddy’s Lab was up by 0.08%.

US markets closed lower on weak economic data

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