OEDC Sees Worldwide Recovery, with Caveats

The Organisation for Economic Development and Cooperation is mostly optimistic about global economic growth; the Federal Housing Finance Agency's index shows house prices down last quarter; and Congress seems to be taking the debt ceiling less seriously than political theater.

By Dees Stribling, Contributing Editor

The Organisation for Economic Development and Cooperation–the club formed by the world’s wealthiest economies–released its most recent “Economic Outlook” on Wednesday, on the occasion of the 50th anniversary of the organization’s founding. On the whole, the report is fairly optimistic about the prospects of economic growth for the OEDC nations and worldwide, but it also says that “the global crisis may not be over yet.”

“Four such challenges stand out: dealing with high unemployment and preventing it from becoming entrenched; sustaining growth and avoiding stagnation; making progress in fiscal consolidation; and managing global imbalances while supporting orderly saving reallocation,” the report says, adding that “these challenges are interconnected and require a comprehensive and credible policy approach,” as if the record shows that such a thing is likely to happen.

Naturally, the OEDC is predicting that some countries will do better than others during 2011 and 2012. Surprisingly, perhaps, the United States isn’t at the bottom of the heap in terms of projected real GDP growth for this year and next, even if the hard-luck cases of Greece, Iceland, Ireland and Portugal aren’t considered. U.S. GDP is predicted to grow 2.6 percent and 3.1 percent, respectively, this year and next, trailing a few places, such as Chile (up 6.5 percent in 2011 and 5.1 percent in 2012); Israel (up 5.4 percent and 4.7 percent); and South Korea (up 4.6 percent and 4.5 percent). Yet U.S. growth will be roughly on par with that of Germany, Finland and Switzerland, and will best Japan, the United Kingdom and France, according to the OEDC.

FHFA house price index dips during 1Q11

The Federal Housing Finance Agency said on Wednesday that its index of U.S. house prices dropped 2.5 percent in 1Q11 compared with the previous quarter. The index was down 5.5 percent compared with 1Q10. The index measures sales prices of properties whose mortgages are insured or owned by Fannie Mae or Freddie Mac.

According to the FHFA, the largest quarter-over-quarter drop was in the Atlanta-Sandy Springs-Marietta metro area, down 13.5 percent. By contrast, metro Pittsburgh held onto its home valuations best between the quarters by managing to eke out a 0.2 percent gain.

“House prices in the first quarter declined in most parts of the country,” Edward DeMarco, acting director of the FHFA, says in a statement. “Foreclosures and other distressed properties are still a key factor. Fortunately, serious delinquency rates are also declining.”

The big show on Capitol Hill

House leadership said on Wednesday that they are bringing a debt ceiling bill to the floor of that chamber next week, one without any restrictions on future deficit spending–a “clean” bill in the odd parlance of Congress. The unstated purpose of the bill is for it to be defeated, so that the congressmen who vote against it this time around can later say that they voted against it, thus mollifying the majority of their constituents who erroneously believe that such a vote is the same thing as voting to reduce federal spending.

Political theater, in other words. The question now is how seriously investors, especially holders of U.S. debt in other countries, will take this particular piece of theater. The real drop-dead deadline for default by the government, according to Treasury, is still Aug. 2.

Wall Street was moderately more cheerful on Wednesday than the day before, with the Dow Jones Industrial Average gaining 38.45 points, or 0.31 percent. The S&P 500 was up 0.32 percent, and the Nasdaq advanced 0.55 percent.