The United States appears to have averted a default with a theatrical last-minute agreement to raise the debt ceiling. But it must now grapple with what appears to be the growing threat of a new recession. Consumer spending contracted for the first time in two years in June. At the same time, manufacturing grew at its weakest pace in two years in July, suggesting the third quarter has not gotten off to a very good start.
Economists in a Reuters poll expect only 85,000 new jobs were created in July, a forecast that may be optimistic given that the threat of default loomed over the economy for much of the month.
Research notes from Wall Street economists were still studiously avoiding the word recession, but the evidence was becoming harder to ignore.
Jonathan Basile at Credit Suisse, describing Tuesday’s report on personal spending:
The monthly profile (-0.1% Apr, -0.1% May, 0.0% Jun) revealed consumers at stall speed in each month of the quarter. And the best consumers could do in June was flat — even with gasoline prices falling. Consumers got some purchasing power back, but did not decide to spend it.