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Job worries surge as debt-limit issue recedes

By Tom Raum

Associated Press

Published: Saturday, Aug. 6 2011 10:20 p.m. MDT

In this Aug. 4, 2011 photo, job seekers Yefin Milinevsky, right, and Jeffrey Thomson speak with recruiters Pam Hockenberry and Catrina Stagnato at a career job fair in Arlington, Va.

Jose Luis Magana, File, Associated Press

WASHINGTON — Anger at the nation's leaders for taking so long to strike a debt-ceiling deal has turned into high anxiety over jobs and the economy amid growing fears of a new recession.

The news that credit rating agency Standard & Poor's downgraded the nation's credit rating a notch for the first time ever only added to the tension.

The darkening clouds come in what should have been a good week for President Barack Obama. After all, he and Republican leaders finally ended a months-long game of brinkmanship with a bipartisan agreement to raise the government's debt ceiling and to trim spending.

The deal kept the government from beginning to run out of cash last Tuesday, averting a first-ever U.S. default and a possible global financial meltdown.

And there was a relatively good jobs report on Friday.

But applause for the debt-limit deal or the increase in jobs never came.

In fact, stock markets around the world tumbled during the week as grim new economic figures suggested the U.S. recovery has stalled and as debt default tensions climbed in Europe.

Terms of the deal to extend the U.S. government's borrowing authority and trim federal spending contributed to investor angst. Many economists suggest the debt-limit measure could even wind up making economic problems worse if belt-tightening spending cuts coincide with a new recession.

And the Standard and Poor's downgrade late Friday cast new doubts on the value of the U.S. debt-limit deal. The credit rating agency said it was cutting the country's top AAA rating by one notch to AA-plus because the deficit reduction plan passed by Congress did not go far enough to stabilize the country's debt situation.

As to that downgrade, economists suggested it might not have much actual impact, noting that the credit ratings of Japan, Canada and Australia had also been downgraded in recent years with few economic consequences.

And in the past few days, investors have been fleeing stock and commodity markets for the perceived safety of U.S. Treasury bonds and bills.

That's a dramatic about face, since just a few days ago, global investors were worried that a U.S. default on its debt would end the longstanding status of Treasurys as the world's safest-haven investments.

"Investors have voted and are saying the U.S. is going to pay them," Mark Zandi, chief economist of Moody's Analytics. Despite the S&P downgrade Friday night, "U.S. Treasurys are still the gold standard," he said.

Zandi noted that neither his parent organization, Moody's, nor Fitch, the other of the three major rating agencies, has downgraded U.S. debt.

"I don't think it (the S&P downgrade) is going to amount to a lot," said Peter Morici, a University of Maryland business economist. Still, Morici said, "The United States deserves to have this happen," because of its clumsy handling of economic policy.

Friday's jobs report — a net increase of 117,000 new jobs in July and an unemployment rate ticking down to 9.1 percent from 9.2 percent in June — was better than expected by forecasters, but it did little to ease fears of a new recession. The jobless rate now has exceeded 9 percent in all but two months since the recession officially ended in June 2009.

Recent reports suggest the economy is slowing to a near-stall.

The U.S. gross domestic product grew at less than 1 percent in the first six months of 2011. Adding to the woes: Manufacturing has slowed and so has consumer spending. At such a sluggish pace, job creation can't even keep up with population growth. GDP growth needs to be above 3 percent to push down unemployment significantly.

After dropping more than 500 points on Thursday, the Dow industrials seesawed Friday, finally closing up 61 points, while other major U.S. stock indexes were down. And that was before the S&P downgrade.

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