July – Month in Review

The Month in Review

• Despite warnings that the United States’ AAA credit rating was in danger of a downgrade, Washington spent much of July in hand-to-hand combat. Debate over an increase in the debt ceiling morphed into a battle over how to begin tackling the deficit. As tax increases were taken off the table, the main issues became whether to revisit the issue in six months or try to get through all of 2012; when, where, and how deeply to cut spending; and whether to link any increase to a balanced budget amendment, the findings of a new congressional committee, or various deficit proposals. Though no legislation had been signed or even passed by both houses of Congress, leaders announced that with hours to go before month’s end, they had reached an agreement to submit to their respective members.

• Anxieties about sovereign debt overseas eased a bit after European leaders agreed to a second bailout for Greece. The hope is that the new aid package will keep the contagion from spreading to other countries such as Portugal, Ireland, Italy, and Spain, which have suffered from soaring interest rates caused by rating downgrades. According to the agreement, bondholders will exchange their Greek bonds for ones with later maturity dates and possibly lower interest rates–a move that credit agencies have suggested in the past might be considered a “selective default.”

• U.S. economic growth during the second quarter was a scant 1.3%, according to the initial estimate from the Bureau of Economic Analysis. Even more discouraging was the downward revision to the estimate for Q1. It put the figure at 0.4%–essentially flat, and substantially lower than the earlier 1.9% figure.

• Unemployment nudged upward slightly to 9.2%. The Bureau of Labor Statistics said private-sector industries were basically flat, while government employment continued to trend down.

• Consumer inflation fell for the first time in a year in June, while the Bureau of Labor Statistics said wholesale inflation also was down.

• Housing news was mixed. The National Association of Realtors® said sales of existing homes were down for the third straight month in June, and according to the Commerce Department, new home sales fell 1% during the month. However, home prices measured by the S&P/Case-Shiller index turned up as summer began and the Commerce Department said housing starts rose 14.6%.

Source: Broadridge