US equities opened sharply lower this afternoon as an unexpected drop in retail sales and producer prices offset optimism emanating from an upbeat speech by Federal Reserve chairman Ben Bernanke.

‘Recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding, and consumer spending, including sales of new motor vehicles. A levelling out of economic activity is the first step towards recovery,’ Mr Bernanke said in a speech today.

Mr Bernanke’s encouraging comments came at the same time as the release of a dismal economic report, which showed a sharp drop in US retail sales and producer prices. Instead of offering signs of a recovery, the official government report unveiled a 1.1% decline in US retail sales for March – much worse than Bloomberg’s most pessimistic forecast of a 0.2% decline in March from an originally reported 0.1% drop the month before. February’s data was revised to show a 0.3% gain, however. The US Labor Department has attributed this sharp drop in retail sales to rising unemployment levels, which have forced consumers to scale back on spending habits.

A separate report also released today came out worse than anticipated as well, showing a drop of 1.2% in US producer prices for March following a 0.1% rise in February. Core prices, which exclude food and fuel, were unchanged, however. The majority of economists taking part in a Bloomberg survey were expecting US producer prices to remain unchanged and core producer prices to increase by 0.1%.

By Anthony Grech, Research Analyst, IG Index.

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