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Financial markets

US Credit Rating Downgraded by Standard & Poor's

Strategic Insights

— 2 min read

Standard & Poor's downgraded the US Government's AAA credit rating to AA-plus with a negative outlook, a decision that could undermine America's economic recovery and send ripples throughout global financial markets. The move follows a day of rumors about the decision and reports that the US Treasury Department had questioned its calculations. This downgrade will increase America's borrowing costs, putting a further strain on the economy and damaging investor confidence in the world's largest economy.

Key Takeaways:

  • The credit ratings agency Standard & Poor's downgraded the US Government's AAA credit rating to AA-plus with a negative outlook, citing concerns about the US Treasury's debt.
  • The decision will increase America's borrowing costs, putting a further strain on the economy and damaging investor confidence in the world's largest economy.
  • Private sector job creation is still running at only half the rate needed to keep up with population growth, and the White House is fighting the perception that it has run out of ideas to create the jobs on which Mr Obama's reelection depends.
  • A poll in Florida showed President Obama neck-and-neck with Mitt Romney, with half of voters saying that Obama did not deserve a second term.
  • The employment figures showed 154,000 new private sector jobs offsetting the 37,000 government positions lost.
  • The Dow Jones Industrial Average hit a new low for this year of 11,177.29, but recovered to close at 11,445.

Statistics:

  • The US unemployment rate fell to 9.1% in July, a tenth of one percent down from the previous month.
  • The US economy added 117,000 jobs in July, marginally better than expected.
  • Private sector job creation is running at only half the rate needed to keep up with population growth.
  • The Dow Jones Industrial Average fell 5.8% for the week, and the S&P500 index fell 7.2%.
  • The employment figures showed 37,000 government positions lost.
  • The chances of another recession are up to 40%, according to some economists.

Sources:

  • The credit ratings agency Standard & Poor's (no source cited in original text)
  • The US Labour Department, citing employment figures (no source cited in original text)
  • The White House, citing statements by President Obama (no source cited in original text)
  • Mitt Romney, Republican front-runner for 2012 (no source cited in original text)
  • Ian Shepherdson, chief US economist at High Frequency Economics (no source cited in original text)

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