May 24, 2017

Home Sales Fell 1.2% in June

The National Association of Realtors said on Monday that sales fell 1.2 percent last month from an annual rate of 5.14 million in May. The association revised down May’s sales, but they were still the highest since November 2009.

Despite last month’s dip, home sales have surged 15.2 percent from a year earlier. Sales have recovered since early last year, buoyed by job gains and low mortgage rates.

Still, mortgage rates have increased in recent weeks over concern that the Federal Reserve could slow its bond-buying programs later this year. The Fed’s bond purchases have helped keep long-term mortgage and other rates low.

Higher mortgage rates slowed sales last month of higher-priced homes in states like California and New York, the association said. The average rate nationally on a 30-year fixed mortgage jumped to 4.46 percent by the end of June from 3.81 percent at the end of May. The rate was 4.37 percent last week.

That rate increase could hamper sales in coming months, economists said. But most expect housing to continue to recover, though at a slower pace.

“There’s little doubt the housing market slowed in the summer as mortgage rates rose,” Daniel Greenhaus, chief global strategist at BTIG, an institutional brokerage firm, said in a note to clients. “Housing is still expected to grow and contribute to economic output. It just may not be at the pace we’ve seen of late.”

Sales of existing homes in June reflect contracts that were mostly signed in April and May, when mortgage rates were lower. Rising rates can cause some signed contracts to fall through if buyers no longer qualify for mortgages at higher rates.

The one factor that might be holding back sales is a limited supply of homes available. Though more sellers put their homes on the market in June, the supply remained unusually low — nearly 8 percent less than a year ago.

At the current sales pace, the number of homes for sale would be exhausted in 5.2 months. That’s below the six months’ supply that’s consistent with a healthy housing market.

Another concern is that first-time buyers, who usually drive healthy markets, are not participating as much in the current recovery. They made up only 29 percent of buyers in June, below the 40 percent that is typical. Since the housing bubble burst more than six years ago, banks have imposed tighter credit conditions and required larger down payments. That has made it harder for first-time buyers to qualify for mortgages.

The strength in housing this year has offset weaknesses elsewhere in the economy, like manufacturing and business investment. Rising home sales tend to lead to more spending at furniture and home supply stores.

Homebuilders have also stepped up construction in the last year, creating more construction jobs. In June, they applied for permits to build single-family homes at the fastest pace in five years.

Article source: http://www.nytimes.com/2013/07/23/business/economy/home-sales-fell-1-2-in-june.html?partner=rss&emc=rss

Economix Blog: Royal Baby Boomlet

The scene outside the London hospital where the Duchess of Cambridge is awaiting the birth of her first child, who will be third in line to the throne.Danny E. Martindale/Getty Images The scene outside the London hospital where the Duchess of Cambridge is awaiting the birth of her first child, who will be third in line to the throne.

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

As you’ve probably heard, Kate Middleton is in labor. While some royal watchers are wondering whether the baby will be a boy or a girl, or what its name will be, the good folks at IHS Global Insight have turned their thoughts to a more important matter: how will it affect the economy?

In a client note, the group’s chief European and United Kingdom economist, Howard Archer, writes that he thinks the birth event will have a positive but “limited” effect on the economy as people potentially spend a few more pounds to celebrate the event:

The most obvious support to the economy coming from the royal birth will be some boost to retail sales through people buying souvenirs and commemorative items, while there is also likely to be a small lift to alcohol sales as some people will want to toast the Royal Baby. There has also been a boost to the bookies through people betting on the sex of the baby and its name. However, even the boost to retail sales from the royal birth needs to be qualified by the possibility that the buying of souvenirs and commemorative items may be displacing some other discretionary spending. There will also likely be few if any street parties that the Diamond Jubilee and the Royal Wedding encouraged, so the boost to food and alcohol sales will likely be much more limited.

Mr. Archer notes that the royal wedding and Diamond Jubilee may have actually had a negative impact on British economic output because both involved “the granting of an extra day’s public holiday to celebrate the events,” meaning offices and stores were closed. Some of that loss may have been recovered thanks to the tourism that the wedding and the jubilee generated, which Mr. Archer does not believe the impending birth will do (at least not now; maybe the international coverage of the new baby could attract travelers’ attention in the future).

The royal birth, like those other House of Windsor events, could also temporarily help increase local consumer confidence through its “feel-good factor,” Mr. Archer writes, especially on the heels of other good economic and sports news, including Andy Murray’s winning Wimbledon and Chris Froome’s taking the Tour de France.

Article source: http://economix.blogs.nytimes.com/2013/07/22/royal-baby-boomlet/?partner=rss&emc=rss

Economic Scene: Studies Highlight Benefits of Early Education

The chart showed the results of cognitive tests that were first performed in the 1980s on several hundred low-birthweight 3-year-olds, who were then retested at ages 5, 8 and 18.

Children of mothers who had graduated from college scored much higher at age 3 than those whose mothers had dropped out of high school, proof of the advantage for young children of living in rich, stimulating environments.

More surprising is that the difference in cognitive performance was just as big at age 18 as it had been at age 3.

“The gap is there before kids walk into kindergarten,” Mr. Heckman told me. “School neither increases nor reduces it.”

If education is supposed to help redress inequities at birth and improve the lot of disadvantaged children as they grow up, it is not doing its job.

It is not an isolated finding. Another study by Mr. Heckman and Flavio Cunha of the University of Pennsylvania found that the gap in math abilities between rich and poor children was not much different at age 12 than it was at age 6.

The gap is enormous, one of the widest among the 65 countries taking part in the Program for International Student Achievement run by the Organization for Economic Cooperation and Development.

American students from prosperous backgrounds scored on average 110 points higher on reading tests than disadvantaged students, about the same disparity that exists between the average scores in the United States and Tunisia. It is perhaps the main reason income inequality in the United States is passed down the generations at a much higher rate than in most advanced nations.

That’s a scandal, considering how much the government spends on education: about 5.5 percent of the nation’s economic output in total, from preschool through college.

And it suggests that the angry, worried debate over how to improve the nation’s mediocre education — pitting the teachers’ unions and the advocates of more money for public schools against the champions of school vouchers and standardized tests — is missing the most important part: infants and toddlers.

Research by Mr. Heckman and others confirms that investment in the early education of disadvantaged children pays extremely high returns down the road. It improves not only their cognitive abilities but also crucial behavioral traits like sociability, motivation and self-esteem.

Studies that have followed children through their adult lives confirm enormous payoffs for these investments, whether measured in improved success in college, higher income or even lower incarceration rates.

The costs of not making these investments are also clear. Julia Isaacs, an expert in child policy at the Urban Institute in Washington, finds that more than half of poor 5-year-olds don’t have the math, reading or behavioral skills needed to profitably start kindergarten. If children keep arriving in school with these deficits, no amount of money or teacher evaluations may be enough to improve their lot later in life.

Much attention has focused lately on access to higher education.

A typical worker with a bachelor’s degree earns 80 percent more than a high school graduate. That’s a premium of more than $500 a week, a not insubstantial incentive to stay in school. It is bigger than ever before. Yet the growth of college graduation rates has slowed for women and completely stalled for men.

The Economic Report of the President released last month bemoaned how the nation’s college completion rate had tumbled down the international rankings, where it now sits in 14th place among O.E.C.D. countries.

The report restated the president’s vow to increase the number of college graduates by 50 percent by 2020, and laid out how the federal government has spent billions in grants and tax breaks to help ease the effects of rising tuition and fees. Last year the government spent almost $40 billion on Pell grants, more than twice as much as when President Obama came to office.

Mr. Heckman’s chart suggests that by the time most 5-year-olds from disadvantaged backgrounds reach college age, Pell grants are going to do them little good.

“Augmenting family income or reducing college tuition at the stage of the life cycle when a child goes to college does not go far in compensating for low levels of previous investment,” Mr. Heckman and Mr. Cunha wrote.

Mr. Heckman and Mr. Cunha estimated that raising high school graduation rates of the most disadvantaged children to 64 percent from 41 percent would cost 35 to 50 percent more if the assistance arrived in their teens rather than before they turned 6.

Erick Hanushek, an expert on the economics of education at Stanford, put it more directly: “We are subsidizing the wrong people and the wrong way.”

To its credit, the Obama administration understands the importance of early investments in children. The president has glowingly cited Mr. Heckman’s research. In his State of the Union address, the president called for universal preschool education.

“Study after study shows that the earlier a child begins learning, the better he or she does down the road,” Mr. Obama said at a speech in Decatur, Ga., in February.

But the fresh attention has not translated into money or a shift in priorities. Public spending on higher education is more than three times as large as spending on preschool, according to O.E.C.D. data from 2009. A study by Ms. Isaacs found that in 2008 federal and state governments spent somewhat more than $10,000 per child in kindergarten through 12th grade. By contrast, 3- to 5-year-olds got less than $5,000 for their education and care. Children under 3 got $300.

Mr. Heckman’s proposals are not without critics. They argue that his conclusions about the stupendous returns to early education are mostly based on a limited number of expensive experiments in the 1960s and 1970s that provided rich early education and care to limited numbers of disadvantaged children. They were much more intensive endeavors than universal preschool. It may be overoptimistic to assume these programs could be ratcheted up effectively to a national scale at a reasonable cost.

Yet the critique appears overly harsh in light of the meager improvements bought by the nation’s investments in education today. A study by Mr. Hanushek found that scores in math tests improved only marginally from 1970 to 2000, even after spending per pupil doubled. Scores in reading and science declined.

“Early education is an essential piece if we are going to have a better education system,” Barbara Bowman, an expert on early childhood education in Chicago who has advised the Education Department. “We’re inching in that direction.”

Education is always portrayed in the American narrative as the great leveler. But it can’t do its job if it leaves so many behind so early.

E-mail: eporter@nytimes.com;

Twitter: @portereduardo

Article source: http://www.nytimes.com/2013/04/03/business/studies-highlight-benefits-of-early-education.html?partner=rss&emc=rss

Off the Charts: Seen From Greece, Great Depression Data Looks Good

The Greeks can only wish they had it so good.

The Greek government this week released its estimate of economic output in the fourth quarter of last year, and also published its unemployment report.

For the year as a whole, the Greek economy, measured in 2005 euros, fell to 168.5 billion euros, down 6.4 percent from the previous year. That was a little better than the 7.1 percent decline in 2011. The last time the Greek economy was smaller than in 2012 was in 2001. The cumulative decline since 2007 was 20.1 percent.

In December, the unemployment rate was 26.4 percent, and that figure actually looked a little encouraging because it was lower than the 26.6 percent reported for November. Not since May 2008, when the rate fell half a percentage point to 7.3 percent, had there been a single month when the unemployment rate was reported to have fallen.

The accompanying charts compare the changes in gross domestic product and unemployment in the United States during the five years after 1929 with the changes in Greece during the five years after 2007.

There is reason to take all the numbers with a grain of salt. The American figures were estimated after the fact, by the government for G.D.P. and by the National Bureau of Economic Research for unemployment. For G.D.P., only annual changes were estimated.

The Hellenic Statistics Authority, Greece’s compiler of official numbers, has a history of deception — the country lied to get into the euro zone — and it now cannot apply seasonal adjustments to its quarterly G.D.P. estimates. As a result, the figures shown in the charts are calculated by adding up the four quarters of each year. But European officials now vouch for the quality of Greek figures.

Perhaps the most telling difference between the course of the two economies comes in government consumption spending — basically spending that is not for investment, as in building roads or bombers. In the United States, that spending was growing even under President Herbert Hoover and helped to cushion the economy’s fall. In Greece, required by Europe to follow a course of harsh austerity, that spending has fallen rapidly, even if it has not declined as rapidly as some Europeans want.

By the fifth year of the Depression, personal consumption spending had begun to recover in the United States. In Greece last year, it fell 9.1 percent, more than in any other year of the downturn.

Greece publishes monthly overall unemployment figures, but provides details only on a quarterly basis. The charts show the trends of joblessness by sex and age group through the third quarter of last year, the most recent available. Women are more likely to be unemployed in every age group shown, and older workers are far less likely to be jobless than younger ones. Even the groups that look good by comparison are doing poorly. Among men age 45 to 64, nearly one in six is out of work. Among men 30 to 44, the figure is one in five.

Rates for teenagers and people over 65 are not shown, since few of them are in the labor force. The picture is glum for those teenagers who do want jobs. The male unemployment rate is 52 percent, and the rate for women is 81.5 percent. Most of those over 65 who say they want to work do have jobs, but the proportion of such people in the labor force has been falling in recent years.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/03/16/business/economy/seen-from-greece-great-depression-data-looks-good.html?partner=rss&emc=rss

European Leaders Gather for a Trillion-Euro Budget Debate

BRUSSELS — European Union leaders are arriving here Thursday afternoon for the start of a two-day summit where they hope to hammer out a nearly €1 trillion budget to support farming, transportation and other infrastructure, as well as big research projects for the 27-nation bloc.

The budget, negotiated every seven years, represents only about 1 percent of the Union’s total economic output and around 2 percent of total public spending. But it still involves furious horse-trading as leaders focus on getting the best deal for their own countries’ citizens, rather than putting pan-European considerations first.

An attempt to reach an agreement in November failed, creating need for the leaders to take up the budget again now.

Enda Kenny, the prime minister of Ireland, which holds the rotating presidency of the Union, warned Irish lawmakers on Wednesday that the talks in Brussels would probably “continue into the night” and be “long and difficult.”

One of the complications in the current round of negotiations have been calls for budgetary rigor from leaders like Prime Minister David Cameron of Britain, who says the European Union should tighten its belt at a time when many European governments have been compelled to impose stringent budget cuts.

That approach has been met with suspicion, and even hostility, in other parts of the Union.

This week President François Hollande of France said he was willing to make cuts in the Union’s budget, but he pointedly warned Mr. Cameron against cutting too deeply into funds that could generate jobs.

“Why should one country be able to decide in the place of 26 others?” Mr. Hollande said, referring to Britain, as he took questions from lawmakers at the European Parliament.

Mr. Cameron, for his part, prepared for the meeting with a series of telephone discussions, seeking to forge an alliance with other leaders likely to support his aim of curbing the budget.

On Wednesday Mr. Cameron spoke to the German chancellor, Angela Merkel, and the Swedish prime minister, Fredrik Reinfeldt, and followed those discussions with phone conversations Thursday morning with the Dutch prime minister, Mark Rutte, and with Herman van Rompuy, president of the European Council who will be chairman of the summit.

“There are like-minded countries among the 27 and we are going to work with our allies to try to reach agreement,” said a spokeswoman to Mr. Cameron who, in line with British government policy, could not be identified by name. Those allies include the Netherlands, Denmark and Germany, she said, adding that Mr. Cameron was expecting to have further bilateral discussions with leaders including those from Sweden, the Netherlands and Denmark.

But others say that separate phone conversations that Chancellor Merkel has held this week with Union leaders could prove more influential.

After the failure to reach a budget agreement in November, another impasse this time would be a severe embarrassment for the Union’s leaders who have already spent years bickering over how to save the euro. Another failure also would force the Union to use provisional annual budgets costing more and could delay any further chance of a long-term agreement to 2015.

To avoid that, leaders are expected to meet into the early hours of Friday morning to hash out a deal that would limit the cash that governments give the Union a total of about €905 billion, but leave the door open to projects requiring an additional €55 billion.

That formula could be enough to satisfy net contributor countries like Britain, which have been fighting most vigorously to freeze E.U. spending, while also accommodating the demands of countries like France to maintain generous payments for agriculture.

The pressure will be on Mr. Van Rompuy, president of the European Council, the body that organizes summits. to present a blueprint for the budget that leaders can use as a basis for their discussions. Mr. Van Rompuy will invite the leaders to make clear their complaints in a roundtable session rather than be allowed to break into small groups.

This article has been revised to reflect the following correction:

Correction: February 7, 2013

An earlier version of this article misspelled the surname of Martin Schulz, the president of the European Parliament.

Article source: http://www.nytimes.com/2013/02/08/business/global/european-leaders-gather-for-a-trillion-euro-budget-debate.html?partner=rss&emc=rss

U.S. Economy Unexpectedly Contracted in Fourth Quarter

The United States economy contracted unexpectedly in the final quarter of 2012, hurt by weaker exports, a drop in military spending and a slower buildup in inventories.

The Commerce Department said Wednesday that economic output in the quarter fell at an annual rate of 0.1 percent, compared with growth of a 3.1 percent pace in the third quarter.

It marked the economy’s worst performance since the second quarter of 2009.

The third-quarter figures had been bolstered by a big jump in inventories, so part of the slowdown was expected as businesses eased back in the fourth quarter. Still, the magnitude of the pullback caught economists by surprise.

Businesses may also have cut back on production because of the fiscal uncertainty in Washington, economists said. In addition, exports have been hurt by slower growth overseas, especially in Europe.

Before Wednesday’s announcement, the consensus estimate among economists for fourth-quarter growth stood at 1.1 percent.

Because data for exports and inventories tends to be volatile, there was a wide range in the predictions. For example, while JPMorgan anticipated growth of 0.4 percent for the fourth quarter, Barclays expected a 1.5 percent increase.

This was the Commerce Department’s first estimate of fourth-quarter growth; revisions are due in February and March, so the final figure could go up or down significantly.

But economists expect that slow growth has continued into the first quarter of 2013, with the consensus estimate currently calling for output to rise at an annual rate of 1.5 percent.

Consumers have been more cautious recently, especially because of a tw0-percentage-point increase in payroll taxes beginning this month that will cost a worker earning $50,000 a year an extra $1,000 annually. That was reflected in a consumer confidence survey released Tuesday by the Conference Board, which reported a sharp downturn in January that it attributed in part to financial anxiety arising from a reduction in take-home pay.

Article source: http://www.nytimes.com/2013/01/31/business/economy/us-economy-unexpectedly-contracted-in-fourth-quarter.html?partner=rss&emc=rss

The Texas Tribune: Twenty Years Later, Nafta Remains a Source of Tension

The agreement between the United States, Mexico and Canada, ratified 19 years ago Saturday, also made two of Texas’ land ports among the country’s busiest and delivered a multi-trillion-dollar cumulative gross domestic product for its member countries.

But unions and consumer-advocacy groups say Nafta has had negative effects in Mexico and the United States. They say that resulting outsourcing and lower wages have hurt the United States’ domestic economy and that Mexico’s rural industries have destabilized.

As economists look to build on Nafta’s momentum to improve trade relations between member nations, critics say they should look to past failures to avoid similar mistakes in the future.

Nafta, which was enacted in 1994, eliminated existing tariffs on more than half of the exports from Mexico to the United States and gradually phased out remaining tariffs between all member countries.

The pact has benefited all three members. In 2010, the United States had $918 billion in two-way trade with Canada and Mexico, according to the office of Ron Kirk, United States trade representative.

Economists say that progress has come despite enhanced global security measures following the Sept. 11 attacks and an eruption of drug-related violence in Mexico. During a recent symposium here, economists and policy makers celebrated Nafta’s success and brainstormed ways to build on it and bolster economic output. The symposium concluded with a clear message: the future is wide open.

“We must continue to build upon Nafta and think more as a region in order to be more competitive globally,” said Gerónimo Gutiérrez, the managing director of the North American Development Bank, which was created by the governments of Mexico and the United States after Nafta’s inception and helps finance and develop infrastructure projects on the border.

But critics of Nafta say ithas resulted in a loss of United States manufacturing and shipping jobs and in less production oversight. They say Nafta has also displaced Mexican agricultural workers into other sectors or forced them to immigrate illegally to the United States.

“There have been huge disparities in the number of people entering the work force and the number of jobs available,” said Timothy A. Wise, the policy research director at the Global Development and Environment Institute at Tufts University. “That resulted in the huge migration problem despite the increased enforcement.”

Supporters say Nafta was not conceived to solve domestic problems for any member country. Instead, they say, the growth in the nations’ G.D.P.’s speaks to the pact’s positive effects. They include the creation of six million jobs in the United States tied to Nafta policies, more than $500 billion in goods and services traded between the United States and Mexico, and the ports of Laredo and El Paso being among the United States’ busiest.

Through September, about $172.5 billion in trade with Mexico passed through the Laredo port and about $65 billion through El Paso, according to United States census data analyzed by WorldCity, which tracks global trade patterns. Canada remains the country’s top partner, with $462.3 billion in trade during the same time frame, ahead of China, which is at $389.7 billion and Mexico, with $369.5 billion.

“I don’t think that Nafta was created to alleviate every single social problem in Mexico. It could not, and it has not,” Mr. Gutiérrez said. “I think that Mexico would be worse off if it wasn’t for Nafta today.”

Public Citizen, a nonprofit advocacy group with offices in Washington and Austin, cites United States Department of Labor data to support what it says is a negative impact on the American work force because of rising imports or offshoring production.

In Texas alone, Public Citizen said, there have been almost 2,500 companies whose workers or union affiliates have filed petitions with the department for training or temporary assistance under its Trade Adjustment Assistance program.

jaguilar@texastribune.org


Article source: http://www.nytimes.com/2012/12/07/us/twenty-years-later-nafta-remains-a-source-of-tension.html?partner=rss&emc=rss

Growth Accelerates, but U.S. Has Lots of Ground to Make Up

The nation’s economic output grew at an annualized rate of 2.8 percent in the fourth quarter, the Commerce Department reported Friday, probably putting to rest last summer’s fears that a second recession was imminent. Other reports this week on manufacturing and consumer sentiment offered similar, if mild, encouragement.

“All in all, it’s not bad, but there’s no oomph,” said Jay Feldman, an economist at Credit Suisse.

Forecasts have called for such slow growth that the Federal Reserve on Wednesday said it planned to keep interest rates near zero through 2014. Even with the pickup in output, the pace last quarter was below the average of economic expansions in the United States since World War II. Given how much ground was lost during the Great Recession, the United States economy needs above-average growth right now.

Government spending is not helping, either. Not because it’s too big — but because it’s shrinking at a rapid pace.

Spending at the federal, state and local levels fell at an annual rate of 4.6 percent last quarter, providing a significant drag on total gross domestic product. At least at the state and local levels, the cuts are likely to continue as municipal governments shed workers and public services.

At the federal level, the biggest cuts were in national defense, which fell at a whopping annual rate of 12.5 percent. That’s an unusually large dip, and economists do not expect to see it repeated in the beginning of 2012.

But legislators may wield the ax elsewhere in the federal budget.

Congress has not decided whether to renew a temporary payroll tax cut and extended unemployment benefits past February, when both are scheduled to expire. Allowing these benefits to lapse would shave a percentage point off gross domestic product growth this year, said Ian Shepherdson, chief United States economist at High Frequency Economics.

“A great deal is at stake,” said Alan B. Krueger, chairman of President Obama’s Council of Economic Advisers. “Continuing that support for household consumption is extremely important for sustaining and strengthening the recovery.”

Growth in the fourth quarter was also driven mostly by companies rebuilding their stockroom inventories, not by consumers who were shopping more or foreign businesses buying more American-made products. And companies are likely to have only so much appetite for refilling their back-room shelves if consumers are still unwilling to buy those products.

Consumer spending rose at an annual pace of 2 percent, slightly better than the 1.7 percent in the previous quarter, Friday’s report showed. But based on early data, it looks as if consumer spending deteriorated toward the end of the year. This may be because of unseasonably warm December weather, which probably lowered families’ household electricity and gas bills. Consumers also benefited from lower gasoline prices, but appear to remain concerned about stagnant incomes.

“We did have some relief on gasoline prices in the fourth quarter, but that didn’t cause people to go out and spend more vigorously,” said Nigel Gault, chief United States economist at IHS Global Insight. “It just means they didn’t have to dip into savings.”

One of the more positive surprises in the report was in housing. Investments in sectors like home construction and repairs rose 10.9 percent last quarter. The housing sector is so small now, though, that it didn’t provide much energy.

Some economists found signs for optimism in other recent economic reports. New orders for manufactured durable goods, reported on Thursday, exceeded economists’ expectations in December by growing 3 percent.

Credit to small businesses has also been expanding steadily over the last year.

“I talk to banks and I talk to small businesses, and I promise you, credit’s been the main problem, just as it is after every financial crisis,” Mr. Shepherdson said. “Once you see credit start to grow again, provided there are no other encumbrances” — like last year’s Arab Spring, Japanese earthquake or debt ceiling debacle — “we should see small businesses expanding and hiring.”

Treasury Secretary Timothy Geithner, speaking at the World Economic Forum in Davos, Switzerland, echoed that sentiment, saying that the critical risks to the American economy were a worsening of Europe’s chronic sovereign debt crisis or a rise in tensions between Iran and the international community, which could stoke global oil prices. He said he expected the United States to grow about 2 to 3 percent this year, ahead of the 1.7 percent growth in 2011. Last year was the slowest growth in a nonrecessionary year since 1947, economists at Credit Suisse said.

Many of the bigger American companies have reported strong profits in recent months, too.

Companies like General Electric and Lockheed Martin closed the year with record order backlogs, a sign that, at least for some businesses, demand is so strong that they cannot produce quickly enough. The backlogs portend solid growth in coming quarters, and suggest to some economists that the United States could weather the European debt crisis relatively unscathed after all.

On the other hand, corporate success has not translated into big benefits for American workers and consumers so far in this recovery. Today, the nation produces more than it did when the recession began in 2007, but it manages to do so with six million fewer jobs.

Companies seem reluctant to use their mounting profits to invest in new workers.

“Businesses have been holding much higher levels of cash than they have in past,” said Conrad DeQuadros, senior economist at RDQ Economics.

Liz Alderman contributed reporting from Davos, Switzerland.

Article source: http://feeds.nytimes.com/click.phdo?i=e52962875ef08c706895374c648ff259

Euro Zone Members Agree to Reinforce Maastricht Treaty Rules

The central aim of the deal is to make it harder for the 17 members of the bloc that use the euro to ignore stringent rules that they had pledged to follow long ago. And to make that outcome more likely this time, the accord creates a center of coordination and decision-making in Europe.

All 17 members of the European Union that use the euro, plus 6 other members — Denmark, Latvia, Lithuania, Poland, Romania and Bulgaria — agreed to subscribe to a new treaty, which binds them more closely, enforces more fiscal discipline and makes it harder to break the rules. Britain rejected the plan, while Hungary, Sweden and the Czech Republic left the door open to sign up.

At the heart of the accord are the fiscal requirements that were laid down in the Maastricht Treaty, which established the euro as a common currency 20 years ago; it called for the euro zone countries to limit budget deficits to no more than 3 percent of gross domestic product and to restrain overall debt so that it remains below 60 percent of annual economic output. Originally, there were sanctions for exceeding these limits, but when Germany and France found themselves doing so the idea of punishments was scrapped.

Once the European Commission, the bloc’s executive body, suggests sanctions for violating the rules, a country will need a weighted majority of nations to prevent them from being enforced. The new mechanism will make it more difficult for countries to avoid punishment.

The provision limiting a nation’s total debt, which had not been taken seriously, will be applied more forcefully, requiring nations to gradually reduce their level of cumulative debt.

Euro zone nations will also have to submit drafts of their national budgets to the European Commission, which will be able to request revisions if it thinks a budget could lead a country to break the euro zone’s rules.

The accord also contains other changes: Governments will have to inform one another about how much debt they want to issue in bonds, and limitations on debt are to be written into national laws or constitutions.

Should countries deviate from the debt limits, an “automatic correction mechanism” will kick in; this is to be designed by each nation in line with principles identified by the European Commission. The European Court of Justice will make sure all nations effectively include debt restrictions in their laws.

“We are committed to working towards a common economic policy,” the nations said in a statement. For all of the accord’s intricacies, skeptics immediately saw potential flaws. Additional aid for euro zone countries that are struggling with unsustainable levels of debt would, at best, buy time for the bloc to create a system that satisfies German demands for budgetary discipline, said Clemens Fuest, a professor at Oxford who has advised the German Finance Ministry.

He estimated that the additional support would provide relief “for perhaps half a year or a year. That is probably the most optimistic scenario.”

Eventually, Mr. Fuest said, the European Central Bank will be forced to relent and become the lender of last resort for nations like Greece, Italy and others members with high debt. The bank’s president, Mario Draghi, has been resisting that role.

Simon Tilford, chief economist at the Center for European Reform in London, says the agreement in Brussels is superficial and fails to address the underlying problems. “It’s little more than a stability pact with lipstick,” Mr. Tilford said.

“It’s hard-wired austerity into the framework of the European Union,” he added. “That’s not going to do anything to solve the crisis.”

But Stefan Schneider, the chief international economist at Deutsche Bank in Frankfurt, said that expectations for a grand solution at the meeting here had been too high. “You can’t make a quantum leap to a fiscal union in one weekend,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=6f3c895e0259e91559efc9bba9b7be34

Europe’s Two Years of Denials Trapped Greece

THE warning was clear: Greece was spiraling out of control.

But the alarm, sounded in mid-2009, in a draft report from the International Monetary Fund, never reached the outside world.

Greek officials saw the draft and complained to the I.M.F. So the final report, while critical, played down the risks that Athens might one day default, with disastrous consequences for all of Europe.

What is so remarkable about this episode is that it wasn’t so remarkable at all. The reversal at the I.M.F. was just one small piece of a broad pattern of denial that helped push Greece to the brink and now threatens to pull apart the euro. Politicians, policy makers, bankers — all underestimated dangers that seem clear enough in hindsight. Time and again over the last two years, many of those in charge offered solutions that, rather than fix the problems in Greece, simply let them fester.

Indeed, five months after the I.M.F. made that initial prognosis, Prime Minister George Papandreou of Greece disclosed that, under the previous government, his nation had essentially lied about the size of its deficit. The gap, it turned out, amounted to an unsustainable 12 percent of the country’s annual economic output, not 6 percent, as the government had maintained.

Almost all of the endeavors to defuse this crisis have denied the overarching conclusion of that I.M.F. draft: that Greece could no longer pay its bills and needed to drastically cut its debt.

Until October, when European leaders conceded that point, the champion of the resistance was Jean-Claude Trichet, who stepped down this month as president of the European Central Bank. It was he who insisted that no European country could ever be allowed to go bankrupt.

“There is simply no excuse for Trichet and Europe getting this so wrong,” said Willem Buiter, chief economist at Citigroup. “It is fine to make default a moral issue, but you also have to accept that outside of Western Europe, defaults have been a dime a dozen, even in the past few decades.”

If leaders had agreed earlier to ease Greece’s debt burden and moved faster to protect the likes of Italy and Spain — as United States officials had been urging since early 2010 — the worst might be behind Europe today, experts say.

The turning point came at a late-night meeting last month when Angela Merkel, the German chancellor, pushed private creditors to accept a 50 percent loss on their Greek bonds. Mr. Trichet had long opposed such a move, fearing that it could undermine European banks. Instead, at his urging, European leaders initially promoted painful austerity for Greece, prompting a public backlash that pushed Mr. Papendreou’s government to the brink of collapse and could force Athens to abandon the euro.

Many view the latest rescue plan as too little, too late.

“Because of all this denial and delay, Greece will need to write down as much as 85 percent of its debt — 50 percent is not enough,” Mr. Buiter said.

It was never going to be easy to turn things around in Greece, particularly given European politics. In countries like Germany and the Netherlands, many people oppose bailing out their southern neighbors. Policy makers and, indeed, many financiers believed that they could buy enough time for Greece to solve its problems on its own.

“It was quite obvious, by the spring of 2010, that Greek debt could not be paid off,” said Richard Portes, a European economics expert at the London Business School. “But in good faith, policy makers felt that Greece could grow out of its debt problem. They were wrong.”

BOB M. TRAA is no one’s idea of a radical. A Dutchman, he labors at the I.M.F., among the arcana of global debt statistics. He wrote the 2009 report.

Immediately after that bulletin, he produced another, more damning analysis, which concluded that if Greece were a company, it would be bankrupt. The country’s net worth, he concluded, was a negative 51 billion euros ($71 billion).

But because Greece had a high-enough credit rating at that time, it could keep borrowing money and skate by. Once again, the Greek government objected to the I.M.F. analysis, although this time, the report was not amended.

Attention has only recently been drawn to these early I.M.F. studies. The Brussels research group Bruegel, which conducted an analysis at the I.M.F.’s behest, concluded the fund should have done more to draw attention to Greece’s troubles.

By early 2010, banks and bond investors were growing reluctant to lend Greece money. The country’s finance minister, George Papaconstantinou, delivered a blistering message to his European partners.

Stephen Castle reported from Brussels.

Article source: http://www.nytimes.com/2011/11/06/business/global/europes-two-years-of-denials-trapped-greece.html?partner=rss&emc=rss