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Weak economic data signal world recovery some way off

NEW YORK/FRANKFURT (Reuters) - Weakness in the U.S. housing sector and consumer sentiment, along with a stall in bank lending in the euro zone, on Tuesday underscored any global economic recovery remained some distance off.

A man looks down as he walks through a business district in Tokyo June 30, 2009. REUTERS/Yuriko Nakao

As further evidence of global weakness, Japan’s unemployment rate hit a six-year high.

Prices of U.S. single-family homes fell in April from March, but the pace of the decline moderated, according to Standard & Poor’s/Case Shiller home price indexes. An index of 20 metropolitan areas dipped 0.6 percent.

“Housing is going to be less of a drag on the economy, but it won’t be adding to (growth) as it traditionally does,” said John Silvia, chief economist at Wachovia Securities in Charlotte, North Carolina.

The collapse of the U.S. housing sector was a key contributor to the global economic crisis, now more than 1-1/2 years old. In the past, housing has often helped lead the U.S. economy out of recession, now 18 months old, but that seems unlikely this time.

And in a discouraging signal from the American consumer, U.S. consumer confidence unexpectedly fell in June after two straight months of gains. The Conference Board, an industry group, said its index of consumer attitudes dropped to 49.3 from 54.8 in May. Economists polled by Reuters had forecast a reading of 55.0 for June.

WORRIES ABOUT JOBS

Americans saying jobs are “hard to get” increased to 44.8 percent from 43.9 percent the previous month.

Investor George Soros predicted a “stop-go” economy on Tuesday, and said fears of inflation will drive up interest rates and choke off growth.

Soros, speaking at a breakfast hosted by the Wall Street Journal, also warned that it is a misconception that markets are self-correcting.

Mounting U.S. job losses have been weighing on consumer spending -- another pillar of economic growth -- so investors are eagerly awaiting the government’s release on Thursday of June unemployment figures. The unemployment rate is expected to rise to a 26-year high of 9.6 percent from May’s reported 9.4 percent, according to a Reuters poll of economists.

Business activity in the U.S. Midwest contracted in June but at a slightly less severe rate than expected. The Institute for Supply Management-Chicago business barometer rose to 39.9 from 34.9 in May. A reading below 50 indicates contraction.

U.S. blue chip stocks reversed earlier gains after the poor consumer confidence data. Consumer spending amounts to roughly two-thirds of the U.S. economy. The Dow Jones industrial average fell 95 points, or 1.08 percent.

Nevertheless, world stocks have rallied since March even if the recovery has lost steam somewhat. The MSCI World equities index is on track to close out June with its best quarter since its 1988 launch.

Japan’s jobless rate in May hit 5.2 percent, its highest since September 2003, as a plunge in demand for exports hits the world’s No.2 economy.

June unemployment rose in Germany, Europe’s biggest economy, but the increase was less than economists had forecast.

GOVERNMENTS SPEND BILLIONS

Western governments have tried to tackle a credit crunch, the root cause of the global crisis, by spending billions of dollars to recapitalize banks and get them lending again.

Loans to euro zone businesses and households grew at the slowest pace on record in May, according to the European Central Bank, underscoring the need for a quick impact from the ECB’s recent liquidity injection and planned bond purchases.

“It’s true that banks are less willing to extend credit but the lending figures are also correlated with job losses, and show that there is not much demand from the real economy,” said Philippe Gijsels, strategist at Fortis in Brussels.

Reporting by Reuters bureaus worldwide; editing by Philip Barbara

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