Joblessness, Home foreclosure, Weak lending; 3 factors troubling the US Economy

Thursday, April 8, 2010

In the US yesterday Federal Reserve Chairman Ben Bernanke said joblessness, home foreclosures and weak lending to small businesses pose challenges to the economy as it recovers from the worst recession since the 1930s.

“We are far from being out of the woods,” Bernanke said yesterday in a speech in Dallas. While the financial crisis has abated and economic growth will probably reduce unemployment over the next year, the U.S. faces hurdles including the lack of a sustained rebound in housing, a “troubled” commercial real estate market and “very weak” hiring, he said.

The remarks reflect concerns by Fed officials at their meeting last month that the job market and tight credit would restrain consumer spending. At the meeting, Bernanke and his colleague's reiterated interest rates will stay very low for an “extended period.” While he didn’t repeat that in yesterday's speech he did say the Fed’s “stimulative” rates will aid growth.

The US Dollar climbed against both the Euro and Sterling in the forex online market yesterday. Against the Euro it posted its third day of gains, climbing 0.41% to close at USD 1.3344. It climbed for the second day against the Pound, gaining 0.20% overall to close at USD 1.5239.

In Europe revised figures have shown that the economy failed to grow at all in the final quarter of 2009 as companies cut spending more than previously expected. The European Union's statistics office said that the quarter-on-quarter growth in the three months to December had proved to be zero. This was revised down from a previously reported 0.1%, according to Eurostat.

GDP in the 16-nation Euro Zone remained unchanged compared with the third quarter when it rose 0.4%. Year on year the economy of the 16 countries using the Euro contracted by 2.2%, more than the previously expected 2.1%.

The European economy is now showing signs of rebounding from its end-of-year relapse as the global recovery prompts companies to step up investment levels. While unemployment is at an 11-year high, economic confidence improved in March and the region’s services and manufacturing growth accelerated to the fastest pace since August 2007.

A separate report yesterday showed that German factory orders held steady in February after a surge in January as an increase in foreign demand for basic goods and machinery countered a drop in domestic orders. Orders, adjusted for seasonal swings and inflation, were unchanged from January, when they jumped 5.1%, according to the Economy Ministry in Berlin. Economists had forecast a 0.5% decline for February.

Orders from outside the 16-nation Euro area increased 2.9% in February from the previous month, driven by a 5% surge in basic goods orders and a 2.4% gain in demand for investment goods, yesterdays report showed. Domestic orders fell 1.9% from January. January’s overall orders increase was revised up from an initially reported 4.3% gain. The data, combined with solid sentiment indicators, suggest the recovery in the manufacturing industry will continue.

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