(Repeat of item transmitted Sunday, Dec. 19)
By Pedro Nicolaci da Costa
WASHINGTON (Reuters) - Wall Street banks have been
gripped by a certain euphoria in recent weeks, with their
economists touting a modest improvement in U.S. data as an omen
of more robust growth to come in 2011.
Housing figures next week may inject a dose of sobriety
into these forecasts. Anticipation of a strong expansion,
coupled with worries about the budget deficit following a new
tax deal in Washington, have pushed Treasury bond yields that
directly affect mortgage rates sharply higher.
This raises the concern that a still-struggling housing
sector, the epicenter of the country's worst financial crisis
in generations, may yet see further deterioration.
With Europe still reeling from a debt crisis that just will
not go away, another bump on the road for the U.S. economy
might deprive the global recovery of not one but two key
A report Wednesday is expected to show existing U.S.
home sales, which account for the bulk of the market, rose by
about 300,000 units on an annualized basis to 4.71 million in
November. That would mark a move further away from the 15-year
low seen in the summer, but it would still be a far cry from
record peaks over 7 million in 2005.
"We're still in an economy that isn't in a normal recovery
mode," said Edward Leamer, director of Anderson Forecast at the
University of California, Los Angeles. "Unless we get housing
and construction jobs back, we will not get a robust recovery.
We will be stuck with high unemployment rates indefinitely."
That view contrasts with the burst of optimism prevailing
in financial markets over the last month. Some economists,
encouraged by what they see as the stimulative effects of a
fiscal agreement between President Barack Obama and Republican
lawmakers, are looking for U.S. gross domestic product to
expand more than 4 percent next year.
For others, however, a battered housing market and bleak
job prospects are a major risk to the recovery.
"The U.S. economy is showing some sparks of life in late
2010," said Ken Goldstein, an economist at The Conference
Board, an industry-backed research group. "The indicators point
to a mild pickup after a slow winter. Looking further out,
possible clouds on the medium-term horizon include weakness in
housing and employment."
A Reuters poll of more than 70 economists suggests U.S. GDP
will rise 2.7 percent in 2011, up sharply from 2.3 percent in a
November poll but still too low a level to make much headway in
reducing the nation's 9.8 percent jobless rate.
Looming in the backdrop is a European debt debacle that
seems to get more convoluted by the week.
Just two days after Ireland's parliament approved an $85
billion rescue from the European Union and the International
Monetary Fund, the IMF warned the country still faces big risks
that could affect its ability to repay the loan. Moody's, the
ratings agency, slashed Dublin's credit grade and European
banks warned of future losses on Irish assets.
Investors' concern about the credit-worthiness of highly
indebted euro zone countries will make it hard for some states
to finance hefty debt repayments in the first half of 2011,
even as new issuance in the bloc falls.
Euro zone countries are expected to borrow less in the bond
markets in 2011 than they did this year, but the interest rates
investors are demanding pose a burden that may become
unsustainable for the likes of Spain and Portugal.
Unlike in the spring, when Europe's problems disrupted
interbank lending and dented U.S. growth, such effects have not
been felt in the latest, more drawn-out round of debt
negotiations. But analysts say the threat remains very real.
(Reporting by Pedro Nicolaci da Costa; Editing by Dan
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