Euro Watch: Spending Data Points to Continuing Woes in Euro Zone

Retail sales in the 17-nation euro zone fell 1.2 percent in October from September, and were down 3.6 percent from a year earlier, Eurostat, the statistical agency of the European Union, reported Wednesday.

For the entire 27-nation European Union, sales declined 1.1 percent from September and 2.4 percent from October 2011, Eurostat said.

The big dip in retail sales was partly a result of front-loading of purchases before value-added taxes rose in some countries, said James Nixon, an economist in London for Société Générale.

The fiscal crisis in the euro zone and the austerity measures employed to combat it have made companies reticent about hiring, helping to drive the euro zone into recession in the third quarter. That has created a vicious circle, in which falling consumer spending is expected to weigh further on the economy.

A reading Wednesday on euro zone activity from a private data and analysis firm also suggested the economy continued to contract. Markit Economics’ composite purchasing managers’ index for November came in at 46.5. That was a bump upward from the 40-month low of 45.7 in October, but the 10th straight month below 50, a level that suggests shrinking output.

On Friday, Eurostat reported that unemployment in the euro zone rose to a record 11.7 percent in October from 11.6 percent a month earlier, and that the jobless rate among those under 25 years of age was 23.9 percent.

The European Commission on Wednesday expressed grave concern about the problem of youth unemployment, noting that just the immediate cost to governments — in terms of lost revenue and social outlays — worked out to an estimated €150 billion, or $196 billion, a year, or 1.2 percent of E.U. gross domestic product.

It recommended a new program to address the problem, with measures including job guarantees for young people, labor market changes to reduce obstacles to hiring across European borders, and further efforts to provide high-quality training and apprenticeship programs.

The European commissioner for employment and social affairs, Laszlo Andor, said in a statement that the cost of failing to help put young people to work would be “catastrophic.”

The European Central Bank and its British counterpart, the Bank of England, will hold policy meetings Thursday, and though signs of weakness would appear to give the central banks scope for action, neither is believed to be planning any major changes to current monetary policy.

Economists expect the E.C.B. to leave its main refinancing rate at 0.75 percent, while the Bank of England is expected to stand pat at 0.5 percent.

Action by the central banks has helped to calm markets and relieve the pressure on the euro, but conditions remain unsettled. As an indication of the stresses that have sent investors scurrying for the perceived safety of major sovereign bonds, yields on France’s 10-year sovereign debt fell on Wednesday to around 2 percent, the lowest level on record.

The dismal retail sales data came as the European Stability Mechanism, the euro zone’s permanent new bailout fund, said it had issued about €39.5 billion in bonds to cover the recapitalization of Spain’s banking sector.

Euro zone leaders agreed in June to provide up to €100 billion to help Spanish banks, which have been battered in the aftermath of a property bubble collapse and economic dislocation caused by austerity measures. The funds were originally raised by the bloc’s temporary bailout fund, the European Financial Stability Facility, and the transaction Wednesday represented an effective transfer of that money from the old facility to the permanent one.

The fund said that €37 billion would be handed over some time in December to the Spanish government’s own banking rescue fund, the FROB, to cover the needs of BFA-Bankia, Catalunya Banc, NCG Banco and Banco de Valencia. The FROB will use the remaining €2.5 billion to capitalize Spain’s “bad bank,” a company called Sareb that is being used to sift through soured assets.

The action Wednesday “is an important event as the E.S.M. has now started to actively fulfill its role as the permanent rescue mechanism for the euro zone,” Klaus Regling, the head of the European Stability Mechanism, said in a statement.

Mr. Nixon, of Société Générale, predicted that the euro zone economy would shrink in the fourth quarter at an annualized 1.2 percent rate, but said he expected some of the northern European economies, including Germany, to start pulling away from the laggards in 2013.

“We may have reached a bottom,” Mr. Nixon said, citing an easing of tension in the market for sovereign debt and smoother financing conditions. “At least things aren’t getting worse any faster.”

Bank of England Divided on Continuing Stimulus Measures

LONDON — Policymakers at the Bank of England are divided over the future of their multibillion-pound program of bond purchases to stimulate the economy, according to minutes of their discussions released Wednesday, which suggests that prospects for an expansion of the program in the near term may be fading.

With the British economy likely to emerge from recession in the third quarter, but still facing extremely weak growth, many analysts had expected more stimulus in November.

But there is also growing sense that, with interest rates already at a record low, and the jury still out on the impact of the central bank’s asset purchases on the economy, monetary policy is becoming less effective as a means of stimulus.

Instead of central-bank stimulus measures, some economists favor a slowdown in the pace of large government spending cuts intended to cut the country’s budget deficit.

The bank’s policy makers also noted that consumer price inflation was still above the bank’s 2 percent annual target and probably would not decline this year, as had been hoped, because of rising energy and food costs. Economists note that inflation argues against an increase in stimulus, for fear of overheating the economy.

The release of the minutes coincided Wednesday with positive new data on jobs. Britain’s unemployment rate for June to August 2012 was 7.9 percent of the economically active population, down 0.2 percentage points from March to May 2012, according to the Office for National Statistics, an independent agency that prepares data for the government. There were 2.53 million unemployed people, down 50,000 from March to May 2012, the office said.

The record of the October meeting of the central bank’s Monetary Policy Committee showed that there was unanimous agreement to hold interest rates at a record low of 0.5 percent and not to expand the £375 billion, or $600 billion, purchasing plan, known as quantitative easing.

But the minutes also indicate that the debate on what to do at next month’s meeting will be finely balanced.

“There were some differences of view between members about the outlook and the likelihood that further easing in policy would be required,” the minutes said. “But there was agreement that there was little to be gained at this meeting in changing the current program of asset purchases.”

The bank minutes noted that consumer price inflation had fallen to 2.5 percent in August, from 2.6 percent in July, still slightly above the 2 percent target. “But higher oil prices and likely rises in domestic energy prices and some foodstuffs meant that inflation might remain broadly flat over the rest of the year, rather than gently falling as expected,” the minutes said.

Martin Weale, a member of the bank’s monetary policy committee, dampened expectations about more asset purchases last week when he said in an interview with the Daily Mail newspaper that it was “not self-evident” that “substantial extra support for the economy would be compatible with the inflation target.”

His comments, along with the labor report “provided some support for more hawkish members” of the central bank’s policy committee, Neville Hill, director of European economics at Credit Suisse, wrote in a note.

Rob Wood, chief U.K. economist for Berenberg Bank in London, said that the central bank’s position on continuing the stimulus would also depend on other signs of recovery in the economy.

“Productivity will be absolutely critical to the outcome of the committee’s November decision,” Mr. Wood said. “If productivity growth remains weak, there are limits to how much more monetary policy” can do “to boost growth without raising inflationary pressures.”