U.S. economy still suffering, China on solid footing

By Chris Reese

NEW YORK (Reuters) - The U.S. economy, particularly the job market, continued to struggle in the second quarter, according to data released on Tuesday, while numbers out of China portrayed an economic recovery on solid footing.

The U.S. data showed employee output in the second quarter gained at its fastest pace in six years, with businesses getting more work out of fewer employees. Analysts speculated that any significant recovery in the job market may be a long way off.

Also, U.S. wholesalers cut inventories for a 10th straight month in June as they faced the possibility of more anemic consumer spending.

Following the inventory data some analysts revised downward their estimates for the U.S. growth decline in the second quarter.

A U.S. bailout watchdog panel on Tuesday also said the U.S. Treasury should consider expanding programs to cleanse troubled assets from bank balance sheets if current programs do not restart markets or economic conditions worsen.

Toxic loans and securities still pose a threat to the financial system, especially to smaller banks that are looking at rising losses on commercial real estate loans, the Congressional Oversight Panel said.

The doubts over the state of the economy took their toll, with U.S. stock markets falling by more than one percent.

A chorus of high-powered officials however said on Tuesday that there were signs that economic decline was slowing.

U.S. President Barack Obama said the U.S. economy was still not "out of the woods" despite some signs that lagging business investment was reviving, while top White House advisor Larry Summers warned that the U.S. economic recovery will indeed be slow, although he noted the foundation for U.S. recovery was being laid.

Billionaire financier George Soros said the U.S. economy had hit bottom, and that the world's largest economy would see positive growth in the third quarter, largely due to government stimulus.

CHINA'S RECOVERY

The picture looked different in China, where data on Tuesday showed signs that a solid recovery was underway, although perhaps not as pumped as earlier in the year.

"Policy-makers in Beijing will be reassured by this latest round of data, that they are on the right track," said Brian Jackson, an economist at Royal Bank of Canada in Hong Kong.

"The data show that activity is still picking up in response to strong policy stimulus, but also suggest that the recovery is not getting ahead of itself, which should alleviate concerns about excessive liquidity."

The main misfire came in industrial output which rose 10.8 percent in the year to July, when the market had looked for an increase of 11.7 percent. That was still the best performance in nine months.