U.S. economy still wobbly; France, Germany show Growth

Fresh data on Thursday dented hopes the U.S. economy is on the verge of a strong rebound, even as Western Europe's two largest economies reported a surprising return to growth in the second quarter.

Many pundits had expected the United States to lead the global economy out of recession, but the world's largest economy was soundly beaten to the punch as its retail sector struggled to lure skittish consumers.

Massive job losses and sharp declines in the housing market have prompted many Americans to pare back spending.

U.S. households are "in no position to drive a decent economic recovery," said Paul Dales, economist at Capital Economics in Toronto.

An unexpected rise in second-quarter GDP in Germany and France, pillars of the euro zone economy, boosted financial markets, which are still fretting over the potential for a global economic pickup.

German Economy Minister Karl-Theodor zu Guttenberg was cautious about the figures. Europe's recovery will likely be patchy at best, with Britain, Italy and the Netherlands still weak and parts of eastern Europe, which rely heavily on exporting to the wealthier western nations, reporting a far gloomier outlook.

GDP in the euro zone fell in the second quarter, albeit by a marginal 0.1 percent.
Germany and France emerged from lengthy recessions in April-June, with their gross domestic product rising 0.3 percent quarter-on-quarter [ID:nLD331672]. The much smaller Portuguese and Greek economies matched that growth.

The country's jobless rate fell in July for the first time in nine months.
We're entering a phase of stabilization and slow growth," Christian Dreger at the DIW Institute. "The main risk for Germany is a sharp rise in unemployment."

U.S. CONSUMERS NOT SPENDING

Retail sales excluding automobiles and gasoline, a popular measure with analysts, fell by 0.4 percent. Headline retail sales fell by only 0.1 percent as the government's "cash for clunkers" auto subsidy program drove more traffic to car dealerships. But new car sales may have drawn demand from other parts of the retail universe.

"While vehicle sales have rebounded, core retail sales have floundered after severe declines in late 2008," said Steven Wieting, economist at Citigroup.

The latest reading on continued claims, or those staying on the unemployment rolls, fell to 6.2 million from 6.3 million, a decline that suggested more long-term unemployed workers are exhausting their benefits.

Taken together, the data dulled hopes for a consumer-led U.S. recovery are elusive. Following a two-day policy meeting it said the economy is "leveling out," the first time in a year that its post-meeting guidance did not characterize the economy as contracting, weakening, or slowing.

WAL-MART EARNINGS BEAT STREET, DESPITE SOFT SALES

Wal-Mart Stores Inc. the world's largest retailer, reported on Thursday unexpectedly better earnings, but it warned that the economy remained a challenge.
The key metric for the giant discounter -- sales at stores open at least a year -- unexpectedly fell by 1.2 percent. Wall Street had looked for a gain of 0.85 percent.

Wal-Mart has benefited from "trade-down" from pricier retail chains, as many American consumers attempt to save cash, especially on staple items such as groceries and household products. Department store operator Kohl's Corp gave a grim outlook for the rest of the year, looking for same-store sales at its 1,000-plus outlets to fall as much as 5 percent.

STOCKS, EURO, INDUSTRIAL METALS RISE

Stocks, commodities and the euro rose due to the GDP surprise, while the dollar dipped. World stocks as measured by MSCI were up 1.1 percent, with U.S. markets rising despite the soft economic data. Wal-Mart surged by 2.8 percent to a four-month high.
Major U.S. stock indices are bumping their 2009 highs. Paulson's disclosure late on Wednesday that he bought large stakes in several banks, including Bank of America Corp., lifted financial stocks and helped sustain the rally.
Paulson of the eponymous Paulson & Co is credited for anticipating the looming credit crisis in 2007.

Meanwhile, copper led advances among industrial metals, reaching a 10-month high of $6,450 a ton on the London Metal Exchange. Lead, zinc and aluminum prices also rose.
"The German numbers are very helpful, the French numbers are very helpful, and that's supporting the copper market," said Sterling Smith, analyst for Country Hedging in Inner Grove Heights, Minnesota.