Avert your eyes for a moment from the weak UK economic data and look at what we’ve learned about the US in the last couple of days. House prices have fallen 4.2% since the start of the year, meaning the 33% tumble from the 2006 peak is greater than the 31% decline seen during the Great Depression. The manufacturing sector appears to have stalled, with the purchasing managers’ index at its lowest level this year. And private-sector jobs are being created at the slowest rate since last September. It looks ”“ just as the bears predicted ”“ as if the US economy is struggling to cope with the end of quantitative easing (QE).
Send for more stimulants then? That’s what happened last year ”“ QE2 was launched in response to similarly discouraging data. But QE3 looks unlikely. The world, and US politics, has moved on. Standard & Poor’s may have been guilty of alarmism in warning about the negative outlook for US debt but the rating agency has stirred the debate in Washington about the relative merits of spending cuts and tax increases. QE3 would sit uneasily with a political mood of belt-tightening. Sceptics in Congress would argue (with some justification) that the law of diminishing returns had already set in ”“ a $600bn (£365bn) programme over the past eight months produced annualised growth of only 1.8% in the first quarter.
The US…[ ] is short of tools.