It is good sometimes to get out of Europe, and a short trip to New York reminded me that though the eurozone is a pretty big chunk of the world economy, the US is a somewhat larger one. While there is still a huge personal debt overhang in the States and the banking system remains under the cosh, there are several signs of life a-stirring in the real economy that show through both in the stats and in the streets.
The streets first. New York is not America, of course, and you would expect a recovery to take hold here first but, despite the difficulties of its financial services industry, the city does seem to have made some sort of turnaround. The hotels are full. The streets are jam-packed with shoppers. Mid-town shops have benefited from the clever revamping of Times Square, which has created a new public space in what was until recently a nasty traffic junction. The big department stores had a good "Black Friday" 10 days ago, the traditional start to the festive shopping season. The music in Bloomingdales has switched to "Jingle Bell Rock". The bars are full; the taxis are busy.
You have to be careful drawing conclusions about an economy from the feel of a place but New York does not feel flat in the way it did a couple of years ago. In fact, the reverse.
For the US as a whole, the statistics confirm a recovery, albeit an uneven one. Growth is coming in at around 2 per cent this year and the live debate in the States is how hard that will be hit next year if, as is now expected, the eurozone does indeed go back into recession. But consumption has been not too bad, car sales are up, and the consensus is that this final quarter will show some growth. There was the pleasant surprise last week of a sharp fall in the unemployment rate to 8.6 per cent – the lowest since March 2009. November was the fifth consecutive month when employers had created more than 100,000 new jobs.
But, if you stand back from the minutiae of the data and look for signs of a big turning point, the thing that I feel is most interesting is the housing market. That was where the catastrophe began and it is where it will end. Up to now, every little upward tick in the residential market has been quickly squashed, and in many cities in the US the market is essentially frozen, with a huge overhang of unsold property.
On Monday, the second largest convention of real-estate agents in the US opened in New York, with a much larger number of people registering than in recent years. Nationally, prices are still falling by about 3 per cent a year but the industry seems to reckon there will be the fundamental turning point next year. Certainly by historical standards US homes are now no longer over-valued.
There remain huge uncertainties. But unlike the European economy, the US one is not falling off a cliff. And that despite the fallout from the eurozone and the less-than-optimal approach of Congress towards cutting the fiscal deficit. For the visitor to the US, the most surprising thing is the way the economy keeps moving despite the policy gridlock in Washington DC.
One final thought: whereas commentators in Europe vie with each other to pile on more gloom, the reverse seems to be happening in the US. When we have some decent numbers – car sales or service-industry expectations – the response is that the good news won't last. In the US, by contrast, quite a few commentators are prepared to stick their necks out. I like this comment from Ian Shepherdson, the chief US economist for High Frequency Economics: "Something good is stirring in the US economy."
In New York, at least, it feels as if he might be right.
... if only the same could be said of poor, battered Ireland
It may seem a sidebar to the agonies of the eurozone as a whole, but the further austerity being piled on Ireland is troubling – and not just for the citizens who are having to suffer the further tax increases and the yet-tighter budgetary cuts.
Ireland has up to now been the pin-up boy of the European fringe. After a wobbly start, it took its bailout money and did everything that was asked of it. Now it appears that action was not enough. An economy that had just struggled back to growth gets hit again.
Most investors have privately given up on Greece and Portugal, and expect not just a formal default but that they will leave the eurozone. But, in the case of Ireland, confidence seemed to be coming back. Bond yields had dropped from close to 14 per cent to around 8 per cent, and the country could begin to see its way back to being able to borrow on the markets again in a couple of years' time. But now they have gone back up to 10 per cent and that prospect has receded.
Something else is happening that is perhaps more ominous. Companies both in Ireland itself and with substantial operations there are starting to make plans in the event of Ireland leaving the eurozone. Of course, officially that is unthinkable. But companies have to prepare for such an outcome, however unlikely they think it might be.
There is a precedent. Those with long memories will recall how the country suddenly broke the link with sterling on 30 March 1979.Reuse content