Central-Bank Action Cheers Investors

The major-league central banks of the world cut the price of borrowing dollars to forestall a liquidity crisis. The Beige Book found a few spots of growth in an otherwise tepid economy. And ADP said the U.S. economy added 206,000 jobs in November.

December 1, 2011
By Dees Stribling, Contributing Editor

Image courtesy Flickr Creative Commons user pguedes

In a joint, directed effort on Wednesday, the major-league central banks in the world — namely the Federal Reserve, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank — suddenly cut the price of borrowing dollars to forestall a liquidity crisis among European banks. Now those banks can borrow dollars cheaply and easily from their own central banks, which will be supplied by the Fed with the necessary greenbacks. The simmering euro-zone crisis has had the effect lately of discouraging European banks from lending to each other, which is a harbinger of very bad things indeed — like when the U.S. liquidity stoppage in late 2008 that panicked the entire world.

The point of the central banks’ intervention was to prevent such a full-blown liquidity freeze, but the move was also an instant tonic for markets around the world. The Dow Jones Industrial Average spiked by 490.05 points, or 4.24 percent, the largest upward movement since early 2009, when investors had decided that the world wasn’t going to end after all. The S&P 500 gained 4.33 percent and the Nasdaq advanced 4.17 percent. Other equities markets in other countries likewise rallied, bond prices dropped and commodity prices rose.

But the action by the central banks did not, as many observers were quick to point out, deal with the underlying problems of euro-zone debt. It might buy time for the governments of Germany and France and supranational organizations such as the EU and the ECB and the IMF and the World Bank to continue to muddle through the crisis to some kind of conclusion. Or maybe it’s merely inspired the latest example of transient optimism about Europe not blowing up — only to be followed by an event that makes the world pessimistic about Europe’s debt time-bomb again.

Beige Book Finds Spots of Growth in Otherwise Tepid Economy

Almost lost among all the excitement on Wednesday, another Beige Book came out, offering the distinctly unexciting news that the U.S. economy remains tepid. Formally known as the “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” this was the last Beige Book of 2011. The next one will be published in mid-January.

“Overall economic activity increased at a slow to moderate pace since the previous report across all Federal Reserve Districts except St. Louis, which reported a decline in economic activity,” the Beige Book began. Some terms used by the book to describe U.S. economic activity included “flat” and “sluggish.” Manufacturing, however, was described as growing “at a steady pace across most of the country, with all districts other than St. Louis reporting increases in orders, shipments, or production.”

Real estate in particular still is moving in slow motion, the Federal Reserve reported. “Residential real estate activity generally remained sluggish, and commercial real estate activity remained lackluster across most of the nation,” the book noted. “Single-family home construction was weak and commercial construction was slow.”

ADP Says Job Growth Over 200,000 in November

ADP, which predicts monthly private employment numbers every month by tracking payroll data, said on Wednesday, ahead of November’s official U.S. employment report on Friday, that the economy added 206,000 in November. The company also revised its October job gain to 130,000 to 110,000. The official increase last month was 80,000 jobs, a total dragged down again by job losses in the public sector.

Employment in the private, service-providing sector increased 178,000 in November, according to ADP, after rising 130,000 in October. Employment in the private, goods-producing sector rose 28,000 in November, with manufacturing employment increasing 7,000, offsetting the previous month’s decline, while construction employment grew 16,000.

“This month’s jobs figures show positive growth in all major sectors of the economy and are in line with the recent drop in the national unemployment rate and weekly jobless claims,” said Carlos Rodriguez, president & CEO of ADP, in a statement. “Despite fiscal uncertainties here and abroad, owners of small- and medium-sized businesses found ways to grow and hire in November.”