Consumer Sentiment in U.S. Falls to 2-Year Low

By Jillian Berman - Jul 15, 2011 10:21 PM GMT+0800

Confidence among U.S. consumers unexpectedly fell in July to the lowest level in more than two years, adding to concern that weak employment gains and falling home prices may keep households from spending.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.8, the weakest reading since March 2009, from 71.5 the prior month. The gauge was projected to rise to 72.2, according to the median forecast of 62 economists surveyed by Bloomberg News.

Slow jobs gains and falling home values may be weakening Americans’ outlooks, underscoring Federal Reserve Chairman Ben S. Bernanke comments to Congress earlier this week. At the same time, gas prices still north of $3.50 may also be weighing on consumers, posing a risk that spending will cool.

“Consumers are still concerned about the economy and the primary driver of that is the sluggish labor market,” said Ryan Wang an economist at HSBC Securities USA Inc. in New York said before the report. “ The relatively low level of sentiment is in fact consistent with the modest growth of retail spending that we’ve seen, particularly in the last three months, and that pattern is likely to hold.” more story...

What if the U.S. Fails to Reach Debt Limit Deal?

Posted by Scott Boyd at 10:02 am UTC, 07/15/2011

Most analysts believe U.S. lawmakers will ultimately arrive at an agreement to lift the $14.3 trillion debt limit in time to avoid defaulting on upcoming interest and debt payments. And just in case the two sides need a little encouragement or reminder of the potential consequences should they fail to arrive at a deal, Moody’s Investors Services and Standard & Poor’s have both served notice that the U.S. is under credit review pending the outcome of the discussions.

The warnings come as representatives from both the Democrats and the Republicans continue to hammer out an agreement to pave the way for the government to borrow beyond the existing debt limit. The Treasury Department has named August 2nd as the deadline, warning that failing to act before this date will leave the country without sufficient funds to meet upcoming debt obligations. After this date, the government will effectively be broke and have no option but to default.

On Wednesday, Federal Reserve Chairman Ben Bernanke used part of his appearance before the Senate Banking Committee to encourage federal lawmakers to get a deal done before the Treasury Department’s cut-off date. Bernanke told the committee that should the Treasury default, the action would send “shockwaves” throughout the global economy.

But what if a deal is not made in time? What would Bernanke’s “shockwaves” look like?

For starters, America’s credit rating would immediately be downgraded to reflect the new “default” status. The government would still have to borrow to cover its operational deficit but with the loss of it’s triple-A rating, borrowing costs would increase dramatically – assuming historical lenders including China, Japan, and Britain would still be willing to bankroll the country. The alternative would be a combination of steep tax hikes and deep spending cuts to cover the shortfall. Full story..