For all the cheering about the recovery one might think actual jobs were being created or bank lending was increasing. Neither is true in the US or the Eurozone.

About a month ago the Sydney Herald reported Eurozone private sector lending almost stalls.

Eurozone private sector lending has nearly stalled, the European Central Bank warned on Friday, posing a threat to what is likely to be a weak recovery from the 16-nation bloc’s first recession.

Growth in loans to the private sector dropped to 0.1 percent in August from a previous record low of 0.7 percent in July, an ECB spokesman said.

Capital Economics European economist Ben May said “there are still few signs that the ECB’s provision of unlimited liquidity to banks is boosting broad money and credit growth.”

Eurozone banks have been criticised by politicians and business leaders for failing to pass on cheap central bank funds to the wider economy and the ECB has also pressed the banks to do their part to support a recovery.

Private-sector lending in the eurozone drops

Inquiring minds note that Private-sector lending in the eurozone falls for first time

THE fragile nature of the recovery in the eurozone was highlighted yesterday in figures showing the first decline in private-sector credit since data was first collected in 1991.

Despite record-low interest rates and efforts to flood the eurozone with funds, the region’s banks have cut the volume of loans to customers. Loans to eurozone households and firms fell 0.3pc in September from a year earlier, the European Central Bank (ECB) said. On a monthly basis, lending rose slightly.

Loans to households and business fell, despite the ECB flooding banks with cash in an effort to revive lending — billions in extra funds have been forwarded to banks. The ECB also cut its benchmark interest rate to a record low of 1pc in a further bid to boost credit.

The annual private-sector lending rate “is a lagging indicator”, said Nick Kounis, chief European economist at Fortis in Amsterdam. He is forecasting the eurozone economy expanded 0.6pc in the third quarter from the second. “The monthly flow data suggests that much of the contraction in lending actually took place in the final months of last year and the first half of this year, while more recently there have been signs of stabilisation.”

ECB Rate Hikes In The Cards?

I will believe it when I see it but the Independent headline reads: ECB rate hikes on cards in anti-inflationary move.

THE European Central Bank (ECB) will have to start raising interest rates before employment picks up in the eurozone, in order to prevent inflation, German Bundesbank president and council member Axel Weber said yesterday.

But a rise in borrowing costs is still some way off, Mr Weber signalled, in one of the most detailed comments so far on the difficult task of withdrawing central bank stimulus to banks and the economy.

He indicated that the first step would be to start scaling back long-term ECB loans to the banks, which are part of the emergency stimulus measures.

The ECB has been lending banks as much money as they want for up to 12 months since the collapse of Lehman Bros last October.

Mr Weber said the withdrawal of emergency liquidity was likely to play an important role next year and indicated it may precede interest-rate increases, which will come when the ECB sees risks to price stability.

“We won’t wait until employment picks up or unemployment rates fall to tighten,” Mr Weber said.

“That would definitely be too late. Our monetary policy must be ahead of the curve, not behind.”

Eurozone Unemployment At Record Highs

The Wall Street Journal is reporting European Consumers, Leaders Remain Cautious as Job Losses Rise.

With job losses continuing to mount, euro-zone consumers are unlikely to support the currency area’s nascent recovery by spending heavily in the months ahead.

Figures released Friday by the European Union’s statistics agency Eurostat showed the rate of unemployment in the 16 countries that use the euro rose to the highest level since records began in 1999.

The euro-zone jobless rate inched up to 9.7% in September from 9.6% in August. Eurostat said 184,000 people joined unemployment rolls across the euro zone in September following a rise of 165,000 in August. That brought the total number of jobless to 15.3 million.

The figures showed that 3.2 million people have lost their jobs in the year to September.

Figures released by Germany’s Federal Statistics office Friday underlined how far the euro zone remains from a recovery in consumer spending. Germany’s unemployment rate has risen only modestly since the start of the financial crisis, thanks to extensive and expensive government initiatives to keep people in jobs.

But the figures showed that retail sales in the euro zone’s largest member fell in September for the second straight month, down by 0.5% from August, when retail sales posted a fall of 1.8%.

“With auto sales also down sharply as payback for the surge in the first half of the year, German consumption clearly contracted sharply … in the third quarter,” said David Mackie, an economist at J. P. Morgan.

Car sales rose in Europe for the same reason they rose here: various cash-for-clunkers programs.

In the US the Market Cheers Over Ugly GDP Report but Thursday’s gains and then some were taken back Friday. GDP increased at an annual rate of 3.5% but 1.66 of that was cash-for-clunkers another bit can be assigned to $8,000 tax credit for houses although most housing purchases would likely have been made anyway.

Bear in mind the effect of all this stimulus was expected to hit the third quarter. It did. Was that all we get for $1 trillion? Sadly, yes it is, with a bit more spillover next quarter.

And take away government spending and what have you got? Not much, not here, not there.

Both Europe and the US must face the question: What now?

2010 is not likely to be pretty.

Mike “Mish” Shedlock
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