Fed's Lockhart says jobs data soft, sales strong

By Matt Bigg

ATLANTA (Reuters) - Atlanta Federal Reserve Bank President Dennis Lockhart on Monday stepped back from his assertion last week that housing woes had so far not clearly affected the broader economy, but said weak jobs data should be evaluated in tandem with strong retail sales.

"Friday's data ... show employment was beginning to soften back in June. This news should be evaluated with recently positive reports in retail sales," Lockhart told a business group.

On Thursday, Lockhart said data had not provided conclusive signs that housing problems were spilling over into the broader economy.

However, Lockhart amended his remarks on Monday to say he is now processing new information and other timely data as he prepares for the U.S. central bank's September 18 rate-setting meeting.

Lockhart's comments signal the U.S. central bank may be closer to acknowledging that the prolonged housing downturn and financial market turbulence has hurt the broader U.S. economy.

The government reported on Friday that U.S. nonfarm payrolls shrank by 4,000 jobs in August, the first fall in four years, raising expectations the Fed would need to cut its benchmark federal funds rate.

However, in a sign consumer spending remained resilient despite the housing market downturn and financial market turbulence, major retailers turned in better-than-expected August sales.

Lockhart said on Monday that data about consumer spending, which makes up roughly two-thirds of the U.S. economy, and employment would be key as the Fed makes its policy decision.

"Employment data certainly are very important, and clearly have to be taken very seriously. The other set of data that we are watching carefully ... is the consumer spending data," Lockhart said in answer to a question.

"Even small changes in consumer sentiment resulting from either direct impact on households of the housing-related issues, or just conceivably caution coming into household thinking ... all of that can add up to a change in consumer sentiment," he added.

Lockhart played down worries that foreign central banks might seek to divest dollar reserves, saying that doing so would be self-defeating for those investors.

"I think the concern for a dollar sell-off is exaggerated," he said in response to a question. "If you are a central bank and if you are selling, a little bit of activity would conceivably shoot yourself in the foot by driving rates down."

San Francisco Fed President Janet Yellen, Dallas Fed President Richard Fisher, and Fed Governor Frederic Mishkin are all due to speak later on Monday.