Headlines and data appearing in The Punch Line came from widely available publications including national and international newspapers, trade journals, economic and industrial bulletins and news websites.

Well Into Recovery, Still in Need of Rehab…

The latest “holiday surprise “fiscal package in the U.S. has caused most businesses and market observers to reconsider the outlook. Many are raising their real GDP forecast for Q4 and 2011. Even though real GDP growth in the U.S. may top 3% next year, it should be noted that this growth trajectory remains modest by historical recovery standards. Moreover, there remains a serious challenge to guide the transition from a policy-driven recovery to self-sustained growth. Real differences have now emerged in the outlook by regions. While the US has opted to jumpstart near-term growth, Europe remains with a cautious policy support. As a result, the lingering European turmoil risks a yet broader crisis and also a persistent shortfall in regional domestic demand that could scuttle fiscal adjustments on the region’s periphery. On the other hand, emerging market and dollar bloc central banks have been raising policy rates since the second half of 2009, in some cases by more than 200 bps already. Given the vast liquidity in the markets, large firms who can tap public markets are enjoying very favorable credit conditions. Households, however, and small businesses remain under enormous pressure and will be struggling for years. Deleveraging and balance-sheet repair have become dominant tasks. While markets overall seem to cheer, labor markets are struggling. For October, the national unemployment rate in the U.S. was a pitiful 9.6 percent. It rose to 9.8 percent in November. Last month’s higher rate was a reminder that the national economy remains sluggish even as it strengthens. Another troubling issue in the outlook is the seemingly crippled U.S. leadership in international affairs. Massive U.S. debts, protracted wars, festering geopolitical flashpoints and waning international influence create a dangerous international power vacuum. There’s little evidence U.S. officials fully grasp this dynamic or know what to do about it.

From the section entitled: The Return to Normal!

The Federal Reserve’s Beige Book, its regular report of regional economic conditions, cited a “slight to modest pace” of activity in five Fed districts, and “a somewhat stronger pace” in five other districts. The remaining two, Philadelphia and St. Louis, reported “mixed” business conditions. This report is broadly consistent with the somewhat better tone to US macroeconomic data of late. Information was collected from early October through November 19. All told, the Beige Book held no surprises, suggesting a gradual recovery that is unlikely to sway most Fed officials away from completing the full allotment of asset purchases under QE2

From the section entitled: You Can’t Handle the Truth

U.S. Weakness – A Serious Global Concern…Former Federal Reserve Chairman Paul Volcker, who is chairman of President Barack Obama’s Economic Recovery Advisory Board, said the U.S. dollar is in danger of losing its role as a global benchmark currency. “The growing question is whether the exceptional role of the dollar can be maintained,” Volcker told a gathering of New York civic leaders at the University Club of New York. The decline of the U.S. economy, political gridlock at home, U.S. involvement in two wars and “festering” geopolitical issues have undermined the ability of the U.S. to influence global events, Volcker said. Volcker offered no prescriptive solutions as he spoke in broad terms of the country’s loss of stature. Policymakers seem to have no intention of actively pursuing fiscal austerity… But tightening is in the pipeline already… Keep in mind that there will still be some fiscal consolidation next year: infrastructure spending will slow, state and local governments will continue to tighten budgets…New Tax Stimulus… a strong signal that there is little commitment in the United States to get its fiscal house in order, especially with the President’s bipartisan budget commission seeing its recommendations being shot down over the weekend.

From the section entitled: Credit Matters

Fed aid in financial crisis went beyond U.S. banks to industry, foreign firms

The financial crisis stretched even farther across the economy than many had realized, as new disclosures show the Federal Reserve rushed trillions of dollars in Emergency aid not just to Wall Street but also to motorcycle makers, telecom firms and foreign-owned banks in 2008 and 2009. In addition to the largest banks and financial institutions, the Fed’s efforts to prop up the financial sector reached across a broad spectrum of the economy, benefiting stalwarts of American industry including General Electric and Caterpillar and household-name companies such as Verizon, Harley-Davidson and Toyota. The central bank’s aid programs also supported U.S. subsidiaries of banks based in East Asia, Europe and Canada while rescuing money-market mutual funds held by millions of Americans.

From the section entitled: Real Estate and Construction Outlook

The apartment sector has benefited from the ongoing struggles in the housing market and the mean reversion in the homeownership rate, which is benefiting rental demand.

The high volatility apparent in the commercial real estate market on a monthly basis is indicative of two prominent trends. First, monthly swings in pricing, sales volumes and average transaction size are common in markets experiencing a turn. Second, it reflects the tension in a market characterized by the majority of sales occurring at two ends of the spectrum — distress sales at the bottom end of prices, and keen investor appetite, especially among REITs, for higher quality properties in core markets at the top end of the market.