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In Europe’s gloom, some rays of hope for U.S. economy
Question of the Day
The Old World’s worries are not necessarily bad news for the New World’s economy — at least in the short term.
While a total economic and financial meltdown in Europe would pose trouble for the U.S., right now Americans are getting a big lift as the European debt crisis relieves pressure on global oil prices and drives interest rates to record lows.
U.S. consumers are entering the peak season for driving this summer with pump prices uncharacteristically falling to $3.71 a gallon on average, well below the psychologically important $4 threshold nationally that they threatened to cross earlier this year.
With vacation season kicking into high gear, the savings at the pump are giving American consumers a second wind at the malls and resorts, and are boosting retail sales and consumer spending, which are the biggest engines of growth for the U.S. economy.
Meanwhile, a budding recovery in the housing market in recent weeks got an unexpected shot in the arm as investors seeking a safe haven from the turmoil in Europe rushed into U.S. Treasury securities, driving the yield on 10-year Treasury bonds to a record low of less than 1.7 percent last week.
The extraordinarily low mortgage rates, combined with an average 35 percent drop in housing prices since the recession, have made buying a home more affordable than ever and is enticing more people back into the housing market, which has been the weakest sector of the economy.
Even as several European economies report collapsing growth rates, the Commerce Department reported Wednesday that new home sales increased 3.3 percent in April from March, with sales rising sharply in every region of the country but the South.
“Europe’s troubles are not significantly damaging the U.S. economy,” and in fact, the paces of economic growth and hiring appear to have picked up in recent weeks, said Aaron Smith, senior economist at Moody's Analytics.
U.S. businesses and consumers “do not appear spooked” by seemingly endless headlines on the European crisis or by worries about fallout for the U.S. economy since voters ousted the sitting governments of France and Greece this month, he said.
While global markets have been roiled by fear that the renewed crisis in Europe will produce a world-shaking event, such as a breakup of the 17-nation bloc that uses the euro, polls show U.S. consumers have been largely ignoring the news and do not view Europe’s crisis as a threat to their own well-being.
That perception, along with the substantial boost coming from lower food and fuel prices and historically low interest rates, is underpinning the strength in the U.S. economy, analysts said.
“The U.S. consumer has fared much better than feared” in light of the global turmoil, said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, noting that retreating gas prices are benefiting consumer confidence and spending.
The drop in oil prices has picked up speed in recent days, with premium crude falling to about $90 a barrel in New York trading this week after trading in a range around $100 for much of the year.
Along with an apparent bottoming out of the housing market’s ordeal and continuing strength in manufacturing and exports, the economy seems to be ginning up some momentum that is not fully appreciated in financial markets, Mr. Grohowski said.
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