Among Euro-Troubles, Ireland Not Doing Badly
- Sep 29, 2011
Early in the week, Wall Street was “optimistic” about the euro-zone debt crisis, as investors fed at a trough of positive rumors. By Wednesday, the rumors had turned ugly and so did the equities markets, with the Dow Jones Industrial Average dropping 179.79 points, or 1.61 percent. The S&P 500 lost 2.07 percent and the Nasdaq was down 2.17 percent.
Are there any grounds for long-term optimism about Europe? Maybe a glimmer. Over in a less-publicized part of the euro-zone, the Irish economy—one that got a bailout not so long ago—posted a 1.6 percent quarterly GDP gain from the first to the second quarter of 2011, and a 2.3 percent year-over-year gain. Exports are up, too, some 23.9 percent since 2Q10.
A renewal of the celtic miracle or just economy blarney? Investors in Irish debt seem to think the Irish recovery is the real deal. On Wednesday, the yield on 10-year Irish government debt closed below 8 percent for the first time since the EU-IMF bailout about a year ago. Still, the country’s dependence on exports for growth poses a risk that Ireland too will be dragged down if the situation in Greece and the other Club Med countries precipitates another worldwide recession.
Businesses’ appetite for capital goods grows
Durable goods orders slipped by an overall 0.1 percent, according to the U.S. Department of Commerce on Wednesday. The modest decline came on the heels of a more robust month for durables in August, when orders increased 4.1 percent.
But the overall number masked a bit of better news in the report: orders for capital goods other than airplanes and military hardware rose by 1.1 percent in August month-over-month and 11.9 percent since the same month last year. Also, unfilled orders, which are generally taken as an indication of future activity, were up 0.9 percent in August, the 16th monthly increase in a row.
U.S. businesses are now leading the way in making major purchases, it seems, buying the likes of computers and communications equipment. Consumers were considerably more reluctant to buy durables last month, especially autos and auto parts, orders for which were down 8.5 percent in August after an upward swing of 10.2 percent in July.
Hoenig retires, takes maverick streak with him
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City until Friday, made a parting speech in that capacity on Wednesday before the Greater Kansas City Chamber of Commerce. Hoenig is best noted for how often he disagreed with Ben Bernanke and the majority of policymakers at the Fed—eight votes against FOMC majorities over the years, mainly objecting to low interest-rate policies.
“When you encourage consumption by inhibiting your interest rates from rising to their equilibrium level, you will in fact buy problems, and we have in fact bought problems,” Hoenig said. He also offered a fairly downbeat assessment of the U.S. economy, positing that long-term growth will not average more than 2.5 percent, which would make it very hard for the economy to climb out of its funk.
On Saturday, Esther George, first vice president and COO of the Kansas City Fed, slips into Hoenig’s old job. So far there’s no indication whether she will slip into his role as monetary iconoclast.