Sales Results Fall Below Expectations, As Sub-Prime Begins To Spread
September 17, 2007
The wider US economy could now be suffering the effects of the sub-prime lending crisis, according to figures released towards the end of last week.
The publication of retail sales figures and industrial output figures were widely anticipated last week as analysts tried to establish whether the sub-prime crisis had spread to the wider economy.
Their fears appeared to be confirmed when consumer sales rose by only 0.3% in spite of prediction of growth of a half a percent. The figure also comes in as a decrease in sales from July, which equalled analyst forecasts for this month at 0.5%.
Additionally, industrial output in the US economy over the course of August rose at its slowest rate in three months at just 0.2%, suggesting that manufacturing firms could be feeling the brunt of the sub-prime fallout.
The sub-prime sector has been the source of untold woe for mortgage lenders and banks across the world. With these figures, it would now seem that it is finally beginning to take its toll on wider economic spheres.
With excessive lending to those with poor credit histories, banks in the US began to feel the pinch as interest rates rose. As defaults and repossessions grew, so too liquidity shrunk as banks turned to lengthy litigation in foreclosure.
Furthermore, with inter-bank lending and assignation of sub-prime exposure, the problem spread to banks across the globe, requiring assistance from most major central banks to restore some stability.
As a result, banks have been less willing to lend and businesses less willing to invest, resulting in the feared wider economic impact that today’s results show, which is expected to have an overall adverse effect on growth and could potentially result in a global recession.
The news was not well received on the Dow Jones, which saw significant sell offs as a result of dented investor confidence and the bleaker outlook for the US economy.