Flat retail sales keeps U.S. on recession watch (Reuters)

WASHINGTON (Reuters) – Growth in U.S. retail sales stalled in August after a spending battle in Congress crushed consumer sentiment, leaving the economy perched uncomfortably close to recession.

The weak data puts more pressure on the U.S. Federal Reserve to try to boost growth, while a report showing flat wholesale prices in August could support arguments within the central bank to take action.

"The slowdown in the economy is real," said Steven Ricchiuto, chief economist at Mizuho Securities in New York. "It's a broad-based slowdown, and that's pivotal."

Retail sales were unchanged last month from July, the Commerce Department said on Wednesday. The government also lowered previous estimates for growth during June and July.

The data was the latest hard evidence the United States is flirting with recession. Other reports have shown there was no employment growth in August, while claims for jobless benefits rose in early September.

Consumer confidence plunged last month after a battle over the deficit slammed stock prices and pushed the nation to the brink of default. The country's debt was then downgraded.

"The consumer reacted to the debt ceiling (argument), the downgrade and the equity market swoon by basically hunkering down and not spending," said Tom Porcelli, senior U.S. economist at RBC Capital Markets in New York.

Citing the weak data, Nomura cut its forecast for third-quarter economic growth to 2.4 percent from 2.6 percent.

However, major U.S. stock indexes shook off the data and rose after the head of the European Commission said he would soon present options for the introduction of euro area bonds, which could help the region fight its debt crisis.

RECESSION FEARS

Consumer spending accounts for about two-thirds of U.S. economic activity, and the retail sales figures showed spending during the first two months of the third quarter was weaker than many forecasters expected.

An increase in sales of electronics, gasoline and food was balanced with drops in purchases of cars, furniture and clothes. Spending at restaurants and bars also dipped.

A gauge that hews most closely to the measure the government uses in calculating GDP rose just 0.1 percent.

A Reuters poll released on Wednesday found economists see a nearly one-in-three chance the United States could re-enter recession. Many economists expect the Fed will unveil new measures to boost growth next Tuesday following a two-day meeting.

U.S. households still feel the pain from the country's 2007-2009 recession. A report on Tuesday showed the U.S. poverty rate -- already the highest in the developed world -- rose last year to 15.1 percent, its highest level since 1993.

Companies are also feeling the pinch. Best Buy Co cut its profit outlook for the year on Tuesday, citing economic uncertainty.

Policymakers are struggling to counter the weakness.

President Barack Obama is lobbying Congress to approve his recently unveiled job stimulus program but opposition Republicans have harshly criticized parts of the plan.

Fed Chairman Ben Bernanke has hinted at further monetary stimulus, although three policymakers within the central bank last month dissented over a pledge to keep interest rates low into 2013.

A separate report on Wednesday from the Labor Department showed prices received by U.S. producers were unchanged in August, held down by a drop in energy costs. That could help keep inflation from being an immediate roadblock to further monetary stimulus.

Another report from the Commerce Department showed U.S. business inventories rose slightly less than expected in July, suggesting firms remained cautious about future demand.

Economic growth slowed sharply during the first half of the year, leaving the economy vulnerable to potential shocks like an escalation of Europe's debt crisis.

U.S. Treasury Secretary Timothy Geithner urged Europe to move more aggressively to solve its troubles, but said it has the financial and economic capacity to do so.

(Additional reporting by Mark Felsenthal in Washington and Richard Leong and Emily Flitter in New York; Editing by Andrea Ricci, Neil Stempleman and Dan Grebler)

(jason.lange@thomsonreuters.com; +1 202 310 5487; Reuters Messaging: jason.lange.reuters.com@reuters.net))

View the original article here

Obama meets Senate leaders, keeps debt talks alive (Reuters)

WASHINGTON (Reuters) – President Barack Obama sought on Monday to narrow the gap between his Democrats and Republicans over raising the debt ceiling, but neither side sounded inclined to compromise ahead of the talks.

Obama met Senate Democratic leader Harry Reid for a little over 30 minutes at the White House and is scheduled to sit down with Senate Republican leader Mitch McConnell at 5 p.m. (2100 GMT).

Reid left the White House without talking to reporters and it was not immediately clear if the ground covered in the meeting would be made public.

Time is running out ahead of an August 2 deadline to raise the borrowing limit. Administration officials said the most important thing was to keep both sides talking, which was why negotiations had escalated to the president.

Talks led by Vice President Joe Biden broke down last week over Democrats' demands to include raising tax revenues alongside spending cuts to lift the $14.3 trillion borrowing limit before the government runs out of cash on August 2.

Failure to act risks the United States defaulting on its financial obligations, which could push the country back into recession. Obama is also trying to ease public concern over his handling of the deficit, which is likely to be a key topic as he seeks re-election next year.

The federal deficit stands at $1.4 trillion, among the highest levels relative to the economy since World War Two.

McConnell has stuck firmly to his party's line that revenue-raising measures were off the table.

"America does not face a debt crisis because we tax too little, but because Washington spends too much. And tax hikes can't pass the Congress. Not only is there bipartisan opposition, the consequences of massive new tax hikes would be fewer jobs," he wrote in an opinion piece for CNN on Monday.

Obama met with House of Representatives Speaker John Boehner, a Republican, and House Minority Leader Nancy Pelosi, a Democrat, last week. The House is not in session this week and many members, including Boehner, are back in their districts.

AVOID STOP-GAP DEAL

The debt ceiling needs to be raised by around $2.4 trillion to ensure that the government has enough money to keep functioning through the November 2012 election.

McConnell has floated the idea of a short-term funding agreement to win a couple of extra months of funding, but the administration said this should not be necessary.

"I don't see any reason to doubt that we'll be able to do a long-term extension of the debt limit accompanied by very serious deficit reduction," a senior administration official said. "We should have a long-term extension that gives people security and confidence."

Republicans say they want spending cuts to equal any increase in the limit, but the administration is pushing for a package that also includes revenues. Obama favors $3 dollars in spending cuts for every extra dollar in revenue.

Democrats are aiming at tax subsidies for oil and gas companies, so-called "carried interest" tax breaks for hedge fund managers, and loopholes that favor corporate jets.

Obama has also backed limiting tax deductions for wealthier Americans which the White House says targets millionaires and billionaires.

But Republicans contend it would also hit hundreds of thousands of small business owners and raise taxes of many American families by limiting deductions for things like mortgage interest payments.

The administration wants to frame the debate as Republicans protecting tax breaks for the rich at the expense of older Americans, and says cuts in spending must also include the Defense Department budget that Republicans traditionally protect.

"Any package of any significance that passes is going to have to have significant spending reductions, including reductions in Pentagon spending. You are going to have some of these tax loopholes for the wealthy and special interests closed," said a senior administration official.

(Editing by Vicki Allen)

View the original article here