US consumer confidence fell this month, industrial production dropped in December and the trade deficit swelled in November, according to reports that prompted some economists to cut fourth-quarter growth estimates.
The University of Michigan's preliminary sentiment index fell to 83.7 in January from 86.7, instead of rising to 87 as forecast.
Production at factories, mines and utilities fell 0.2 percent last month, the Federal Reserve said, and the trade deficit hit a record US$40.1 billion in separate government report.
"Business isn't going to produce more stuff if nobody is out there to buy it," said Catherine Mann, a senior fellow at the Institute for International Economics in Washington.
Consumers, whose spending generates two-thirds of the economy, and production by manufacturers, who account for a seventh, are considered key to sustaining a recovery. The shortfall in trade, another element of gross domestic product, prompted economists including David Rosenberg of Merrill, Lynch & Co. and Maury Harris of UBS Warburg to pare fourth-quarter growth estimates to an annual rate of less than 1 percent.
"We estimate that GDP is running at a weak 0.8 percent" instead of the previously forecast 1.3 percent, Rosenberg wrote after the reports. "We have revised down our forecasts for net exports, inventories, and capital equipment spending."
The US trade deficit widened from a revised US$35.2 billion shortfall in October, the Commerce Department said. Imports surged following a resumption of business at West Coast ports and also reflected a record inflow of holiday and other consumer merchandise, the Commerce Department said.
"Nonetheless, the November trade data do not suggest a weak economy since strong import growth is indicative of rising demand," said John Ryding, chief market economist at Bear Stearns in New York, who also said fourth-quarter growth may be "closer to 1 percent than 2 percent."
Fourth-quarter growth was estimated at 1.4 percent in the latest Blue Chip Economic Indicators survey. The economy is forecast to speed up to a 2.7 percent annual rate this quarter, the average of the economists in poll.
Economists said the drop in the Michigan sentiment index suggests consumers aren't convinced that President George W. Bush and Congress will agree to a plan to stimulate the economy and create jobs.
The lengthy buildup to possible military action in Iraq may also be taking a toll.
"There are reasons to feel a good deal of uncertainty about the road ahead -- the war on terrorism persists, and the threat of military action in Iraq grows," said Robert Parry, president of the San Francisco Federal Reserve Bank. Fed policy makers are expected to leave the overnight bank lending rate at a 42-year low of 1.25 percent when they meet Jan. 28 and Jan. 29.
While the holiday shopping season was disappointing for retailers such as Federated Department Stores Inc and Best Buy Co, overall retail sales rose 1.2 percent in December as Americans bought a record number of cars and trucks in the month.
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