Dennis Lockhart, Atlanta Federal Reserve Bank President, backed off a statement last week in which he said that the housing crisis had not clearly affected the broader economy. Lockhart said Monday that Friday's payroll data showed "employment was beginning to soften back in June. This news should be evaluated with recently positive reports in retail sales." The Labor department said nonfarm payrolls dropped by 4,000 in August, well short of the 115K gain forecast by economists, and the first drop in U.S. payrolls since August 2003 (full story). Lockhart also repeated a comment from Ben Bernanke that the Fed will consider "all timely information" when it meets next week. Though Lockhart, a FOMC voting member, seems undecided, the divergence in his comments demonstrates a step towards acknowledging that the housing slump and an increase in volatility of the financial markets has hurt the broader U.S. economy. Lockhart also mentioned strong August retail sales. Consumer spending, responsible for two-thirds of the U.S. economy, will be monitored closely between now and the meeting: "The other set of data that we are watching carefully... is the consumer spending data. Even small changes in consumer sentiment resulting from either direct impact on households of the housing-related issues, or just conceivably caution coming into household thinking ... all of that can add up to a change in consumer sentiment," he said.
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