August – Month in Review

• The last-minute resolution of the debt ceiling debate couldn’t prevent Standard & Poor’s downgrade of the U.S. credit rating (and ratings of various agencies linked to the federal government) from an impeccable AAA to AA+. Two other agencies maintained their existing ratings, but said they will be watching to see what further measures are taken to tackle the deficit, including proposals from a “supercommittee” charged with finding at least $1.2 trillion in additional deficit reduction.

• With investors demanding higher yields on Italian and Spanish sovereign debt and virtually no economic growth in Germany and France, European leaders agreed to establish a council to oversee eurozone economic issues. However, they declined to support creation of a eurozone bond backed by the entire European Union.

• Weaker-than-expected economic data led the Federal Reserve’s Open Markets Committee to announce that it plans to keep interest rates at their current extreme lows through at least mid-2013 to try to give the recovery some breathing room. However, there was no sign of a new round of bond-buying (QE3); Chairman Ben Bernanke said fiscal policy measures, for which Congress and the Obama administration are responsible, are needed at this point rather than changes in the Fed’s monetary policy.
• Economic growth in the second quarter was even slower than previously estimated, with the Bureau of Economic Analysis putting gross domestic product (GDP) at 1%. Manufacturing showed sharp declines, according to both the Institute for Supply Management and the Philadelphia Fed survey, though industrial production saw improvement. Unemployment dipped slightly to 9.1%, with lost government jobs partly offsetting gains in the private sector.
• Housing prices as measured by the 20-city S&P/Case-Shiller index showed improvement from the previous month but were still down from last year. Meanwhile, housing starts and sales of existing homes dropped month-to-month, though both were up substantially from last year, according to the Commerce Department and the National Association of Realtors®.

Source: Broadridge