Economy Watch: Pro-Bailout Victory in Greece; Rise in U.S. Foreign Investment, but Consumer Sentiment Down
- Jun 18, 2012
Once again, the eyes of the world are on a nation whose GDP is roughly the size of Wyoming’s. Polls closed in Greece at noon Eastern time on Sunday, and preliminary results indicated that the pro-bailout New Democracy party won about 30 percent of the seats in the Greek parliament.
Like the inconclusive result of the last round of elections, that percentage isn’t enough to form a government. But unlike the May elections, Greece is about to run out of money (at the end of this month), and that seems likely to spur the socialist Pasok party, which got 12 percent of the chamber’s seats, to join forces with New Democracy. The second-place vote-getter, the Syriza party, was clearly against the terms of the bailout.
But even with a new government, nothing has fundamentally changed. Under the terms of the current bailout, the next Greeks have to cut the equivalent of about 5 percent of Greek GDP from public spending by later this summer, a timetable no one believes will actually happen. Still, for the moment at least, investors seem glad the pro-bailout party more-or-less won the elections, with Asian stocks and the euro gaining ground early on Monday.
Direct Foreign Investment in U.S. Spikes
The U.S. Department of Commerce reported late last week that the United States attracted $28.7 billion in foreign direct investment during the first quarter of 2012. The quarter marked the 12th one in a row with a positive inflow of direct investment into the country, which Commerce defines as purchases of real estate assets or corporate acquisitions, but not buying Treasuries or other public debt.
Direct foreign investment in the United States by overseas investors was about $234 billion in 2011, a 14 percent increase over 2010. The rapid increase came in the aftermath of a drastic drop in 2008 and ’09, as the world’s economy nearly unraveled. Both 2010 and ’11 were above-average years in terms of direct investment inflows in the country (compared to the average of the years from 2001 to 2011).
According to Commerce, about two-thirds of direct foreign investment came from Europe. The euro zone is a nervous place, and apparently capital is seeking the perception of safer shores on this side of the Atlantic. There have also been major influxes of capital into the United States from countries that rarely supplied any in previous decades, such as Brazil–which is helping drive the commercial and residential real estate markets in South Florida.
Consumer Sentiment Down
Consumers felt as glum as expected during the first two weeks of June, with the Reuters/University of Michigan consumer sentiment index coming in at a 2012 low of 74.1 on Friday, down 5.2 points from the reading at the end of May. Expectations in particular took a beating in early June, down 5.4 points to 68.9, which is another 2012 low. Current conditions fell by 5.1 points to 82.1 for the mid-June reading.
Consumers’ main worries remain employment and income. As in 2010 and ’11, the feeling now is that the spring of 2012 was yet another false dawn for a robust recovery.
Consumers might be blue, but Wall Street was optimistic on Friday ahead of the Greek election weekend, with the Dow Jones Industrial Average gaining 115.26 points, or 0.91 percent. The S&P 500 advanced 1.03 percent and the Nasdaq was up 1.29 percent.