Retail sales were down in April for the second straight month.  Following the solid gain in the first three months of this year, real consumption could merely be flat in the current quarter.

US gross domestic product has contracted once again by just over 6% at an annual rate. However, the worst of the adjustment phase should be over now, thanks not least to progress in inventory adjustment.

The latest monetary policy decisions by the Fed have prompted hefty reactions in government bonds and on the foreign exchange markets. However, an accelerated slide in the US-dollar is not on the cards, nor will long-term government bond yields remain permanently at a very low level.

Following the very good start to the year retail sales did not suffer a nasty setback in February. This enhances the prospect that real consumption will not drag down growth again this quarter.

Retail sales rose in January for the first time in seven months. In spite ofthe difficult backdrop, there is a chance that real consumption might notdecline as strongly this quarter as it did in the second half of 2008.

January also saw a sharp drop in employment. For it to stabilize, overall demand needs to rebound. The labor market report underscores the necessity of a massive stimulus package.

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.