The slowdown in the U.S. economy persisted early in the third quarter with factory activity in the U.S. Mid-Atlantic region contracting in July for a third straight month and new claims for jobless aid surging last week.


"The data confirm that the economy has cooled off pretty considerably late in the second quarter and early in the third quarter from the pace we saw earlier in the year," said Omair Sharif, an economist at RBS in Stamford, Connecticut.

The economy has been hit by fears of deep government spending cuts and higher taxes next year, and troubles from the debt crisis in Europe, culminating in slower job growth, weak consumer spending and soft manufacturing output.

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