U.S. News Good, European News Not
- Nov 18, 2011
First, the good news. Relatively good news that is, since it involves the housing market. The U.S. Department of Commerce said on Thursday that new single-family residential starts were at an annualized rate of 434,000 units in October. That’s a 5.1 percent increase month-over-month, even though the overall rate of residential housing starts was essentially flat (628,000 units, down 0.3 percent from last month), because the up-and-down nature of multifamily starts took a turn downward in October.
Yet the longer-term trend in housing isn’t the recovery of the single-family market—because it hasn’t recovered—but rather the boom in multifamily construction. During the 12 months ending in October, apartment permits have spiked about 63 percent. During the same period, permits for single-family homes were up only 6.6 percent.
Also in the good news category, the U.S. Department of Labor reported on Thursday that for the week ending Nov. 12, initial unemployment claims was 388,000, a decrease of 5,000 from the previous week’s downwardly revised figure of 393,000. The less volatile four-week moving average was 396,750, a decrease of 4,000 from the previous week’s average of 400,750, a figure that had also been revised downward.
Europeans at odds over what to do
Next, the less-than-good news. Naturally, it comes from the euro-zone. The yield on 10-year Spanish bonds was over 7 percent on Thursday, inspiring the Spanish prime minister to demand in unusually blunt language that the European Central Bank act like a real central bank and “defend the common policy and its countries.” Buy more debt, in other words. Get on the QE train.
The ECB, and the EU’s real boss, Germany, have so far declined to convert the institution into one that functions like a national central bank along with lines of the Federal Reserve or the Bank of England—a lender of last resort. The wanna-be EU boss, France, is pushing for the ECB to vacuum up some of the euro-zone’s sovereign debt to stanch the panic. So Germany and France are at odds, and everyone knows it. Bad timing for such a high-profile spat, it seems.
When the ECB was created, the notion that the euro would even need a lender of last resort was probably pooh-poohed by the same economists and officials in Brussels who said the spending habits of the southern EU countries were no big deal to the stability of the grand common currency. So far the ECB has bought about $252 billion in assets, about a tenth as much as the Fed has since the Panic of 2008.
Mainly what the euro-zone has right now is a lot of uncertainty, and investors hate uncertainty. National leaders are holding meetings, economists are making statements, pundits are speculating about the future of the euro, but concrete policy to stop the contagion seems to be a moving target, one that’s moving further away from doable each day.
On Thursday, equities markets worldwide reacted strongly, and not in a good way, to the uncertainty in Europe. After drops in Asia and Europe, the Dow Jones Industrial Average was down 134.86 points, or 1.13 percent, while the S&P 500 and the Nasdaq lost 1.68 percent and 1.96 percent, respectively.