MercoPress. South Atlantic News Agency

Black Tuesday for the US economy plagued with bad news

Bernanke anticipates more difficulties

Tuesday was a particularly black day for the US with a rainfall of bad news including Federal Reserve chairman Ben Bernanke forecast of “numerous difficulties” ahead for the US economy plus reports of the highest inflation since 1981.

Bernanke delivered a somber midyear outlook to Congress, saying the US faces "numerous difficulties" despite the Fed's interest rate-cutting campaign, which began last September in hopes of preventing a recession. He said the Fed expected the economy to grow for the rest of this year "appreciably below its trend rate" and cautioned inflation was likely to move "temporarily higher" in the near future. Meantime the US Labor Department said wholesale inflation, driven by skyrocketing gas and food costs rose by 9.2% for the 12 months ending in June the fastest pace since the summer of 1981. At the same time retail sales turned in their poorest showing in four months despite the US government's stimulus checks. Retail sales were up just 0.1% in June, the worst showing since February. That figure reflected a huge drop in auto sales and would have been even worse had it not been for a big jump in gasoline sales reflecting higher prices. Consumer spending accounts for two thirds of total economic growth in the US and the weak sales came as the government was pumping out 28 billion in economic stimulus checks, bringing the total payments to 78 billion by the end of June. And the bad news spread to New York: on Wall Street the Dow Jones industrials closed below 11.000 for the first time in two years, and shares of troubled mortgage giants Fannie Mae and Freddie Mac tumbled again. Fannie shed 27.3% and Freddie lost 26%. In Los Angeles police had to order people lined up outside an IndyMac Bank branch to remain calm or face arrest as they tried to pull out their money on the second day of the failed institution's federal takeover. General Motors said Tuesday it plans to lay off salaried workers, cut truck production and suspend its stock dividend, all in an effort to raise 15 billion US dollars to help turn around its North American operations.