WASHINGTON (AFP) - A weak report on retail sales, a key element of US economic activity, fueled nagging doubts about whether a so-called "soft patch" for the US economy is lingering.
Retail sales fell 0.3 percent in August, marking the third decline in the past five months, the Commerce Department said. The decline was steeper than the 0.1 percent drop expected by Wall Street economists.
Excluding autos, retail sales rose 0.2 percent, in line with forecasts. Sales were up 4.9 percent in the past 12 months, but only 0.4 percent over the past three months.
The figures showed a mixed picture for consumer spending, which represents about two-thirds of US economic activity. Some retailers had blamed their poor performance on the weather and on a sluggish trend for the Labor Day holiday.
"Consumers seem to be in a bit of a funk," said Joel Naroff at Naroff Economic Advisors. " How long that will last is unclear, but we really could use some better retail sales to perk up this mediocre economy."
Federal Reserve officials, hinting that they will remain on a path to gradually higher interest rates, have argued that the economy has passed over a soft patch and is gaining traction.
Some economists have questioned whether this weakness has ended, in light of the tepid economic news.
"In terms of whether the soft patch is over, I think its a little premature to make the proclamation," said David Rosenberg, chief North American economist at Merrill Lynch.
"I think the most you can say is that things are not getting worse."
Most economists say the economic reports have been strong enough to allow the Fed to lift key rates another quarter-point on September 21, but that the central bank may not be as aggressive in following months.
"We have a Fed that is still bent on raising rates on September 21," Rosenberg said. "This is for no other reason than to normalize interest rates" after a period of extraordinarily low rates to stimulate a weak economy and guard against deflation.
Rosenberg said however the Fed may have to think about cutting rates again next year if the economy fails to gather steam.
The rate hikes, he said, "may be to reload the fateful cannon so they can cut rates again next year."
In a separate report, the government said the US current account deficit, the broadest measure of trade and investment, hit a record 166.2 billion dollars in the second quarter, potentially bad news for the dollar.
The deficit increased to a record 5.7 percent of gross domestic product during the quarter.
"In the very short run, foreign central banks are likely to continue to sustain the dollar," said Marie-Pierre Ripert, US economist for CDC IXIS.
"But obviously the sustainability of the rising current account deficit is questionable. Either the US economy will see a reduction in spending or the dollar will have to fall much further."
But Stephen Jen at Morgan Stanley said the problem may be more linked to US trading partners than to the United States, and does not see the dollar as set to tumble.
"We still view the world as out-of-balance not only because the US has a savings-investment deficit, but because the rest of the world (particularly Asia) has a chronic savings-investment surplus," he said.
"With the rest of the world insisting on running large current account surpluses, this makes it impossible for the US to fully normalize its deficit: The view of global rebalancing through (a fall in) the dollar is a red herring."