Signs of weakness in the US economy have sent markets, already nervous after the Greek election result, tumbling sharply.
Investors had been betting that the US was on the growth track, making up for slowdowns elsewhere, particularly in China and the eurozone.
But disappointing results from a range of American household names have seen some of that optimism dissipate. Ahead of the US Federal Reserve’s latest meeting - which may well now be less hawkish about interest rate rises than had previously been thought - Microsoft, Pfizer, Procter and Gamble and Caterpillar all fell short of expectations.
On top of that orders for durable goods - long lasting products such as equipment, cars and white goods - fell for a fourth straight month.
Non-defence capital goods orders - excluding aircraft - fell 0.6% in December, compared to expectations of a 0.5% rise, indicating that slowing global growth and falling oil prices were having an effect on business investment. Total new orders fell 3.4% from a 2.1% decline in November. Chris Low, chief economist at FTN FInancial, told Reuters:
A global slowdown, strong dollar and weakness in the oil sector all likely contributed to orders weakness in the second half of last year. The drop in capex will weigh on growth, though stronger consumer spending should keep GDP from slowing too much.
Dr Harm Bandholz, chief US economist at UniCredit Research said:
The Census Bureau just reported that US durable goods orders unexpectedly dropped 3.4% in December. In addition, the number for the previous month was revised down to -2.1% (was -0.7%).
This weak performance in the fourth quarter comes on the back of a very strong rise in capex shipments in the third quarter. So to us, the decline in the fourth quarter does not point to a sharp deceleration in investment activity. It does, however, dash hopes that the strong performance in the third quarter marked the beginning of an accelerated upward trend. And the lackluster performance of capex orders, the leading indicator, at the end of last year does not suggest any significant improvement for the coming quarter, either. As a result, and as we have pointed out on several occasions before, the US economy continues to rely primarily on its proven engine of growth: the consumer.
So Wall Street, hampered by the predicted blizzard as it has been, is down sharply, with the Dow Jones Industrial Average down 270 points or 1.5%.
In the UK, the FTSE 100 is now down 62 points or 0.9%, while Germany’s Dax has dropped 139 points or 1.25%.
The uncertainty over the future of Greece after the victory by anti-austerity party Syriza is adding to the volatiliy, with the Athens market now down nearly 5%.
