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Europe Cools American Sentiment

12:00 AM, Apr 28, 2012 • By IRWIN M. STELZER
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·     Consumer debt levels are dropping, so that financial obligations (credit card and mortgage payments), which sopped up 14 percent of consumer income in 2007, now claim only 10.9 percent, leaving more spending money in purses and wallets.

·     Even the housing market seems ready to leave the intensive care unit, although not the hospital. Average prices are up a bit for the first time since July 2007 according to the Federal Housing Finance Agency, and in some cities are now above year-earlier levels. Sales of new homes in the first quarter exceeded last-year’s level, which it must be noted was nothing to shout about. The Federal Reserve Board’s monetary policy committee, considering all of the data from this important sector, cautiously acknowledges “some signs of improvement.” The Wall Street Journal is more enthusiastic, featuring a page one headline, “Stunned Homebuyers Find the Bidding Wars are Back,” and attributes that to “supply shortages.”

Then there is some cheery anecdotal evidence. Ford Motor Company’s securities have regained their investment grade status, something no one thought possible when it bravely hocked every asset to avoid following General Motors and Chrysler into bankruptcy and the embrace of the federal government. And investors, who had persuaded themselves to dump Apple shares because it couldn’t possibly match recent results, were treated to what Wall Street calls “an upside surprise” when first quarter profits clocked in at 94 percent above last-year’s figure on the back of booming sales of iPhones (up 88 percent) and iPads (up 151 percent). No tree grows to the sky, but this Apple tree is giving it a try.

The difficulty in digesting all of this positive evidence, and laying it against the bad news from Europe, is demonstrated by the fact that the report issued by Federal Reserve Board’s monetary policy committee after last week’s meeting was “a little vaguer than you’d like,” according to Fed chairman Ben Bernanke. He attributed that to the need to reflect a consensus of committee members’ disparate views. The committee increased its forecast of economic growth and lowered its projection of unemployment, but neither by enough to change current policy. It’s steady as she goes, until incoming data suggest either tightening or loosening. No surprise there. 

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