US rate cut, manufacturing improves, building approvals fall: Economy roundup

The US economy might not officially be in recession – data released overnight shows it actually grew at 0.6% during the first the three months of 2008 – but there’s no doubt that the world’s biggest economy is in big trouble. Even the central bankers realise the problem – as expected the US Federal Reserve cut rates by 25 basis points to 2% in an effort to kick-start the economy.

There was little immediate reaction to the cut, other than a 1 cent rise in the Australian dollar to a touch over 94 cents. The Dow Jones finished flat last night and the local market has fallen by 0.8% in morning trade, mainly on the back of weaker commodity prices. The big corporate news came from Westpac, which posted a 10% increase in first-half cash profit to $1.8 billion.

The Australian Industry Group’s Performance of Manufacturing Index increased slightly in April, up 0.4 points to 52.7, just above the 50-point mark separating growth from contraction in the sector. Higher interest rates and easing global conditions continue to weight on manufacturers.

Building approvals fell 5.7% in March, a much weaker result than expected outcome of a 1% fall. The fall in approvals was driven by a large 5.8% decline in approvals for houses. Sally Auld, co-head of Australian economics and interest rate research at ANZ, says: “This is a genuinely soft piece of data which will add to the case for unchanged policy at next week’s RBA board meeting.”