S&P Cuts US Growth For Next Three Years

When Standard & Poor cut the US rating, the reaction of the country was akin to that of Mike Tyson after he was knocked out by Evander Holyfield. The stunned silence and feeling of “that should not happen to us” was tangible. However, S&P has just turned up the dial. In its latest report, the ratings agency has said that, “While July data finally showed a slight improvement in the U.S. economy, it's not enough to support expectations that the second half of the year will see a bounce in growth. We now expect to see an even slower recovery than the half-speed we earlier expected. We now expect just 1.9% growth in the third quarter and 1.8% in the fourth, to bring 2011 calendar year growth closer to 1.7% instead of 2.4% we earlier expected. We also downwardly revised growth expectations for 2012 and 2013, as a more drawn-out recovery is factored into our forecast.” The question is, is this tantamount to treasonous behavior, or is this cold, hard realism? The evidence points towards the latter. “It is disturbing that policymakers do not seem to have the weapons or the political resolve to fight the economic crisis,” S&P said. “Those policy problems are a large reason why we believe the economy is more vulnerable to another recession. Once again the Fed is willing to step in, just like it did in 2008 when Congress refused to pass legislation (including TARP), as markets spiraled out of control. But this time, the Fed is confronting the collapse with a sling shot, not a bazooka, so its measures will have less bite.” S&P's outlook is certainly bleak, and they seem to make it clear that they are not fans of the current administration. “Confidence in the recovery and in U.S. policymaking has hit new lows. After U.S. sovereign debt lost its triple-A status and financial markets unwound, consumer confidence hit a 31-year low and manufacturing sentiment readings contracted. While some hard data, such as the stronger-than-expected July retail sales and recent jobs report, show that not all news is bleak, the preponderance of evidence to the contrary explains the sour moods. Though we still expect weak growth, not a recession, the data indicate a more drawn-out, painful recovery than the half-speed one we earlier expected.” They don't let up either, saying that a slight improvement is barely an improvement at all. “There are some signs that the second half of 2011 won't look as bad as the first; however, anything slightly better than a 0.8% average growth rate is not impressive. The jobs market will likely remain weak into 2013, so housing will remain soft.” Ouch. After being blamed for the collapse in some quarters, S&P has come out punching. It is doubtful that they will be on the Fed's Christmas card list.