Economy Watch: Germans Throw Cold Water on Euro Quick-Fix

Germany and France are still at odds about the best way to recapitalize banks who once thought that Greek and Irish and Portuguese and even Italian debt would be a good investment.

By Dees Stribling, Contributing Editor

On Monday, German officials cleared their throats and said that, ahem, a dramatic breakthrough at the EU summit this weekend, one that would cure all of Europe’s woes and free investors to worry about other things, isn’t all that likely. Fixing something as FUBAR as the euro is going to take a little more time than that, the sober-minded officials said—months or longer.

Germany and France, for example, are still at odds about the best way to recapitalize banks who once thought that Greek and Irish and Portuguese and even Italian debt would be a good investment. Also, the details of leveraging the 440 billion euro ($605 billion) European Financial Stability Facility—that is, the bailout fund—remain murky at this time.

Still, the markets are expecting something to happen this weekend beyond merely approving the next round of bailout money for the Greeks. Maybe another optimistic communique would buoy investors for a few days. Perhaps more importantly, investors dream of some kind of euro fix-it plan, maybe a version of the five-point plan outlined lately by the president of the European Commission, to be on tap by the time the Group of 20 meets in Cannes in early November.

Manufacturing continues slow growth

U.S. industrial production saw a modest uptick of 0.2 percent in September according to the Federal Reserve, as the demand for cars and computers increased, offsetting a drop in demand for the likes of appliances, furniture and carpeting. The Fed also reported that capacity utilization for U.S. industry edged up to 77.4 percent, a rate 1.7 percentage points above a year earlier. That’s a better rate, but it’s still 3 percentage points below the long-run (1972-2010) average.

For the third quarter as a whole, U.S. industrial production rose at an annualized rate of 5.1 percent. Some sectors naturally did better than others, but the output of transit equipment was positively on steroids, jumping 31.8 percent, the largest increase among the major components of business equipment for the quarter.

A more specialized industrial report by the Federal Reserve Bank of New York, the New York State Manufacturing Survey, was less optimistic, reporting that conditions for New York manufacturers continued to deteriorate in October. The general business conditions index remained negative and, at -8.5, was little changed. The new orders index hovered around zero, indicating that orders were flat, while the shipments index rose above zero to 5.3.

Americans will spent more traveling for Christmas

Americans have been shopping more recently, and, if a survey released by American Express on Monday is correct, 42 percent of travelers will also spend more on holiday travels this year compared with 2010. The survey, the American Express Spending & Saving Tracker, indicates that the average family of four intends to spent $2,636 on holiday travel, or $659 per person, an increase of nearly $200 from last year.

Despite persistent nickel-and-diming by the airline industry, fully 36 percent of travelers plan to fly this year, compared with 26 percent last year. Some travelers will spend more dining out, while others will take longer trips, stay in more expensive digs, or travel with more people.

Wall Street apparently didn’t much like what it heard from the Germans on Monday, with the Dow Jones Industrial Average dropping 247.49 points, or 2.13 percent. The S&P 500 was down 1.94 percent and the Nasdaq declined 1.98 percent. Not to worry, though. Someone will overhear something positive muttered about the euro-zone crisis soon, and the equities markets will make another swing upward.

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