Bleak economic reports signal recession
WASHINGTON (Reuters) - A series of bleak economic reports on Friday showed the mood of American consumers deteriorating in February to a point that has usually signaled recession, while factory activity in New York state suffered its biggest drop on record.
Complicating worries about an economic downturn, data suggesting bubbling price pressures, raised the possibility of a scenario of simultaneously slowing growth and rising inflation -- "stagflation."
"This is just horrible. The sustained volatility in the markets, the rise in energy and food prices and, of course, the catastrophe in the housing market is making consumers extraordinarily miserable," said Ian Shepherdson, chief economist at High Frequency Economics in Valhalla, New York.
Stocks slipped on fears that a slowdown in consumer spending, which makes up about 70 percent of U.S. GDP, could signal serious problems for the economy. The Dow Jones industrial average regained some ground by the end the day, but closed down about 28 points, or around 0.2 percent, at near 12,348.
The flight into safe-haven Treasury securities pushed debt prices up, sending yields on the benchmark 10-year note to 3.77 percent from 3.82 percent late on Thursday. The dollar slid against most major currencies as the data fueled fears of more economic weakness ahead.
The Reuters/University of Michigan index of consumer sentiment dropped to 69.6, well below analysts' median forecast of 76.3, from 78.4 at the end of January. The February reading was the lowest since February 1992.
"The sentiment index has only been this low during the recessions of the mid 1970s, the early 1980s and the early 1990s," survey director Richard Curtin said in a statement.
A Federal Reserve survey showed overall U.S. industrial production inched up 0.1 percent in January but factory activity was unchanged.
Financial markets, however, took their cue from the record drop in a gauge of February factory activity in New York state, which fell to nearly a five-year low.
"It's another recession-type reading. New orders came unglued here. There's further downward pressure on production coming," said Keith Hembre, chief economist at FAF Advisors in Minneapolis.
But evidence of rising price pressures may crimp the Federal Reserve's interest rate cutting options.
A gauge of prices paid contained in the New York factory report from the New York Federal Reserve Bank hit its highest level in two years.
Adding to inflation warning signs, a Labor Department survey showed U.S. import prices rose 1.7 percent in January, powered by higher prices for oil. Export prices increased 1.2 percent, the largest rise since January 1989.
"The import price surge is a reminder that as the economy enters recession, inflation is still a concern, coming not just from domestic sources," said Josh Stiles, a bond strategist at IDEAGlobal in New York.
"The underlying risk is that this downturn is not going to make inflation risk completely go away," he said.
(With additional reporting by Lucia Mutikani, Richard Leong and Jennifer Coogan in New York and Doug Palmer in Washington)
(Reporting by Mark Felsenthal; Editing by Andrea Ricci)
