US stocks dip on Europe recession fears
October 16, 2014, 6:20 pm

Lack of European growth has led to a sell-off in US markets [Xinhua]

On Wednesday, the Dow Jones plummeted more than 450 points before leveling off at only a 170-point to 16,142 drop by closing of trade.

The S&P 500 index and the Nasdaq also continued to lose ground, albeit not as heavily, by 15 points to 1,862 and 12 points to 4,215, respectively.

The drop, culminating a month of disappointing NYSE performance, was triggered by fears that Europe is perilously close to recession.

European woes

Some countries, like Italy, are already in recession, while others face stagnation.

European business analysts in the past few weeks have highlighted the status of the German and French economies, and what awaits the eurozone if the European Central Bank doesn’t implement stimulus measures.

Unemployment has been a major concern for the 18-nation block but despite the best efforts of hardest-hit countries, it has never really been able to reach its 20-year low of 7.2 per cent in March 2008, the first year that the US sub-prime mortgage crisis began to pull Europe into recession.

According to Eurostat, the European statistics and survey agency, the current unemployment average in the bloc is 11.5 per cent, slightly lower than 12 per cent just last year.

Exacerbating the situation is that second quarter growth in the eurozone has pivoted near zero.

Germany, considered Europe’s economic powerhouse, saw it’s economy stagnate at -0.2 per cent for the first time, after registering first quarter growth of only 0.4 per cent.

Analysts say that Germany is being pulled back by weaker economies in the eurozone.

There was more disappointing news on Monday when financial information company Markit reported that the eurozone Manufacturing Purchasing Managers’ Index (PMI) dipped to 50.7 in August from 51.8 in July.

A reading above 50 in PMI surveys indicates an expansion in activity while one below the threshold points to a contraction.

Germany’s PMI was 51.4 in August; France’s fell to 46.9.

One critical indicator of Europe’s economic health is its inflation rate.

The European commission late last week, reported that eurozone inflation had fallen from 0.5 to 0.3 per cent, well below the two per cent marker the ECB had said would define a growing economy.

The European Central Bank (ECB) has expressed concern about low inflation rates in the eurozone; the bank says that low inflation – or deflation – can postpone growth as consumers wait for bargain prices for goods and services.

Eventually, this leads to inadvertent stagnation.

Back in the US …

US economic indicators did not deliver the best news either this week.

While the unemployment rate fell from 6.1 to 5.9 per cent on October 3, fears appear to be increasing that a strengthened US dollar could ultimately hurt exports and trim GDP growth by 0.2 per cent. The US economy grew at an annualized (revised) rate of 4.6 per cent in the second quarter.

And it looks like consumers and employers have been given a boost in confidence on the economy’s improving trend.

On Thursday, the Department of Labor said that initial claims for jobless benefits dropped to the lowest weekly tally since 2000.

The Department’s statistics showed that jobless benefits around the country fell by 8.5 per cent for the week ending October 11.

Market analysts will now be looking to the Federal Reserve to soon change its near-zero interest rates.

Source: Agencies