Beyond any doubt today’s interest rate cut was designed to boost confidence. US monetary policy is now clearly expansionary.

All in all the financial turmoil triggered by the US housing crisis will not leave the European economy completely unscathed but the impact will be largely confined to those countries where the economic and debt picture most resembles that of the US. This means Spain and, to a lesser extent, the UK. For the euro area we now expect growth of 2.1 % in 2008 (previously 2.2 %). Our 2008 forecast for Germany remains unchanged (2.5 %).

The Fed’s discount rate cut clearly signals its willingness to stabilize the financial markets. This step is to be welcomed and will help calm the markets in the short term.

A much-worked piece of economic wisdom says: “If the United States sneezes, the rest of the world catches a cold”. This implies that even a slight economic setback in the US has distinctly negative fallout on business elsewhere. Of late correlation between the business cycles in the USA and the euro area has been lower than was the case in the past. What are the causes? Will this trend continue?

September’s retail sales look weak only at first glance. Stripping out the price-induced drop in gas station sales, there is plenty to suggest robust expansion in consumer spending in September.

The US economy is currently sticking closely to the Fed’s scenario. In parallel with weaker economic numbers, inflation also remains contained. This means that there is no acute reason for the Fed to change its monetary policy line once again.

US retail numbers for August reflect relief for consumers on the energy price front. Although overall sales were dragged down by a decline in gas station sales, most consumer goods categories actually recorded an increase.

The revised figures on labor productivity confirm our view of substantially higher inflationary pressure than had previously been evident in the statistics.

On the surface the latest labor market figures are disappointing. But the underlying data also reveal a positive trend: rising earnings prospects are at last boosting labor market participation. This should help prevent wages overshooting.

Largely due to better foreign trade numbers, US growth has turned out slightly more favorable than we had initially expected. The regular revision of the national accounts alters the picture slightly for both inflation and economic risks.

Industrial production recorded a surprisingly strong increase in June. The output of capital goods was again the main driver. High capacity utilization points to ongoing buoyant investment momentum.

According to figures published today, retail sales were practically flat in real terms in the second quarter 2006. High energy prices were again the bane of US households. The auto industry has been hit the most by the resulting cuts in spending.

As we had expected, the purchasing managers’ index for the US manufacturing sector fell marginally in June compared with the previous month. The sub-components suggest that companies intend to run down their inventories in the months ahead.

May saw a temporary stabilization of residential construction activity compared with the preceding month. But the 10 % average drop in April and May compared with January (not annualized) illustrates the marked squeeze on residential construction in the second quarter. In addition, the trend in building permits suggest that the bottom has not yet been reached.

US labor market report for May was surprisingly weak. Although as a rule the volatility of the monthly numbers renders interpretation difficult, the 3-month moving average points to a noticeable cyclical slowdown. Inflation risks remain limited.

The industrial purchasing managers’ index for May this time mirrors the emerging trend in the overall economy: weaker economic growth in conjunction with higher inflation.

Despite a deterioration in both the situation assessment as well as the future prospects, consumer confidence signals a currently still very robust economic development. Above all the upswing on the labor market is intact. However, the anchor of inflation expectations is gradually giving way.

US retail sales rose only modestly in April. In real terms, given the surge in gasoline station sales on the back of high energy prices, the figure is disappointing.

Housing starts in the US economy fell sharply in February. Nonetheless, housing construction is still set to make a substantial contribution to growth in Q1 2006. Recent evidence of a slowdown in the rise in house prices will not be directly followed by a decline in building activity.

Apart from the chilly weather, the unwinding of special effects was the main reason behind February’s drop in US retail sales. These include the waning gas price burden on consumers and the petering out of restocking effects following the hurricanes. The decline can therefore be seen as signaling a return to normal.