The US Federal Reserve has signalled that the 0.25% cut in its key interest rate overnight, to a nice round 2%, will be the last for a while, completing its bailout of the profligate, overpaid bankers and their shareholders on Wall Street.

Now it can turn its attention to the wider economy where it and the rest of American business seem bereft of any new ideas.

After ignoring ordinary Americans for months — allowing their mortgages to crash, homes to be lost in foreclosure, jobs to go and ignoring the issue on the campaign trail — America’s politicians, businesses and regulators are turning to them to try and dig the country out of the hole caused by Wall Street and its subprime scandal.

It’s going to be a big ask. The US economy is static; it grew at 0.6% in the March quarter, unchanged from December’s annual rate, but sharply down on the 4.9% “boom” rate in the September three months.

Some in the US argue that this means the Fed has stabilised the economy with rate cuts of 3.25% since last September and that the way is now clear for a rebound. The 0.6% figure was slightly better than the 0.5% forecast by most economists, so there were smiles all around, until they started delving into the numbers and found some horrifying holes.

As a result some economists now assert that the US is in recession because 1% of the actual raw growth figure came from a build up in unsold business inventories (0.8%) and a 0.2% contribution from a smaller trade deficit as exports rose 5.5% over the quarter.

Consumer spending, which is the largest part of GDP, rose by a small 1% per cent in the first quarter, the weakest rate since the second quarter of 2001 and less than half of 2.4% in the sluggish December quarter.

But when broken down, real final sales to domestic purchasers (which is all the goods bought by US consumers regardless of where they were produced and adjusted for the change in inventories) fell by 0.4% per cent, the first fall since 1991.

In other words, stripping out the boost from the rise in unsold stocks of goods, actual purchases by consumers had the first fall in 17 years. Now that’s serious and means Americans are now so fearful of the outlook that they cut their spending for the first time in nearly two decades.

And these are the shock-hardened consumers with a fistful of dollars expected to spend the US out of the slump. But wait, there’s worse…

Residential fixed investment (or spending on new and existing homes) plunged 26.7% in the first quarter, the biggest fall so far in eight consecutive quarters of decline. That’s still the real economic story in the US, the black hole which is destroying demand, consumer confidence, house prices, retail sales, bank profits etc etc.

Business investment is suffering now: spending on equipment and other capital goods fell 2.5% in the quarter, a worry given that exports are booming. That’s a sign business reckons it can’t make any profitable investments at the moment because demand is poor, the cost of funds is high and the outlook uncertain. Business spending rose 6% in the December quarter, so the slump in March is significant.

On Friday we will get the April jobs numbers from the US. The March quarter saw around 240,000 people lose their jobs and around 85,000 more are expected to be lost in April. Petrol is at a record average of $US3.60 a gallon and it’s not even the peak driving months of July-August, when prices usually peak.

America faces the very real prospect of the economy slumping into negative territory this quarter simply because of the depression in housing and the need by business to cut unsold stocks.

But the first one-off tax rebates started flowing to US taxpayers this week: an average $US900 per person totalling around $US100 billion in the next six weeks or so. A total of $US152 billion will be injected into the economy, all borrowed money, to be repaid at a future date, with the cost of higher interest rates.

So naturally, US retailers kicked off big advertising campaigns this week to try and grab some of those dollars with price cuts on everything from essential foods to plasma TVs. The $US900 won’t go far, it won’t help pay rents or mortgages, but it will keep the wheels of commerce ticking over, so struggling retailers can sell off the stockpiles built up by manufacturers and importers who ignored the warning signs in the March quarter.  

Synergy all around then and by the time the rebate runs out of puff, the story will be that the rest of the economy is awakening, but not if the rebate is spent on cut-price goods and stocks of unwanted products: it should be stimulating demand of new goods and products.

And how eager are American retailers for that rebate to be spent? Wal-Mart, the world’s largest retailer, this week said it would cash any rebate cheque free of charge, even if the money was not spent in one of its stores. All the person had to do was promise to spend it in a shop… somewhere.