Brief Look Back at November

November 30, 2010

In November, the fear of a new U.S. recession receded, helped by upbeat retail sales and labor market data. 

In contrast, the euro area was subjected to intensifying centrifugal forces amid contrasting rates of economic growth among members, widening bond yield spreads, disappointing hard data for orders, GDP and retail sales but upbeat sentiment and survey data.  The bailout package for Ireland only diverted tension upstream to Portugal, Spain, and Italy.  Even France was scrutinized more closely. 

Reported Japanese growth of 3.9% annualized in 3Q didn’t remove misgivings about growth in that economy.  Several indicators — the economy watchers index, consumer confidence, housing starts, industrial production and the tertiary index to name a few — weakened.

Signs could be found that growth in emerging and developing economies may be coming off the boil in response to more restrained government policies. 

The housing sector continues to disappoint in many economies including the United States and Britain.  Housing provided the spark that ignited the global financial mess and ensuing recession.  Until housing hits bottom, the U.S. and global economies remain vulnerable to both external and spontaneous internal shocks.

Monetary policy is no longer monolithic in direction.  Interest rates during November were raised in Australia for a seventh time, in Chile for a sixth time, in India for a fifth time, in South Korea for a second time and Hungary for a first time.  Reserve requirements were tightened in China and Turkey.  Rate cuts, on the other hand, were implemented of 50 basis points in South Africa, 75 bps in Iceland, and the Federal Reserve announced its intention to buy $600 billion of longer-dated Treasury securities over eight months. 

World leaders have not found a good vehicle for coordinating macroeconomic and microeconomic policymaking.  The G7 left out too many players, but the G20 is proving overly cumbersome and experienced its third straight ineffectual conference.  In China, CPI inflation picked up to 4.4%, but officials let the yuan advance just 0.2% on balance between end-October and end-November. 

President Obama suffered through another month of real and moral defeats.  As foretold in opinion polls, Democrats suffered large and widespread losses in the election, and evidence mounted that Obama’s domestic political difficulties are encouraging friends and foes alike overseas to test U.S. foreign policy.  Action on the Bush tax cuts remain a matter of high importance before the lame duck congress and one that on this, the final day of month, the president signaled would get much greater attention and urgency in December.  U.S. political tensions and an increasingly besieged Federal Reserve have not prevented America’s economic recovery from gaining new traction after hitting a soft patch last spring.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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