Worst of downturn may be over

There was mixed news on the economic outlook this week, with higher than expected growth in the US service sector in August, but also an unexpected rise in new applications for unemployment benefits.┬á  Figures released by the Institute for Supply Management showed its non-manufacturing index at 50.6 in August, up from 49.5 in July. A figure above 50 signifies growth. ┬á┬á But the Labor Department said new applications for unemployment insurance rose by 15,000 from the previous week, against expectations of a fourth week of falls. ┬á┬á Many retailers report sluggish sales in the back-to-school period, however. Although Wal-Mart saw higher August sales, due to heavy discounts attracting customers looking for bargains, other retailers suffered. ┬á┬á Separate ISM data showed productivity better than forecast in the second quarter, while labor costs also declined. The figures suggest the US economy is in better shape than had previously been thought. ┬á┬á Productivity climbed at an annual rate of 4.3 percent in the three months to June, according to the Commerce Department, against 2.6 percent in the first three months of the year. ┬á┬á Labor costs also dropped 0.5 percent on a yearly basis, reversing the rise seen in the three months to March when they were 1.2 percent higher. ┬á┬á When labor costs rise faster than productivity, this adds fuel to the fire of inflation. With productivity rising and labor costs falling, however, some analysts believe that the US might have seen the worse of the downturn. ┬á┬á The US economy expanded at a revised rate of 3.3 percent annually during the second quarter of 2008, much higher than initial estimates of 1.9 percent.   ┬á┬á┬á┬á*┬á┬á┬á┬á┬á┬á┬á┬á┬á *┬á┬á┬á┬á┬á┬á┬á┬á┬á *┬á