Debt legislation expected to bring some relief amid manufacturing declines
August 2, 2011
by The Canadian Press
WASHINGTON—Investors and businesses worldwide are eyeing the U.S. in the wake of new legislation that could curb the country’s debt and alleviate global economic fears.
The U.S. has passed an emergency debt ceiling bill that raises its borrowing cap to $14.3 trillion.
The government had said that without the new borrowing authority, it would not be able to pay all its bills.
It would run out of cash to pay investors in Treasury bonds, recipients of Social Security pension checks, and businesses that work with the government. Administration officials also said defaulting would severely damage the global economy.
While the debt ceiling deal brings some relief, it comes in the wake of new data that suggests the country’s economy is far from on the road to recovery.
According to the U.S. Commerce Department, Americans cut back on their spending in June for the first time in nearly two years and incomes grew by the smallest amount in nine months.
Meanwhile, the Institute for Supply Management found manufacturing activity in the U.S. barely grew last month.
While activity expanded for 23 straight months, the July reading was the lowest since July 2009, a month after the recession officially ended.
The numbers are raising fears of a double dip recession, although some analysts are still hopeful that growth will rebound in the second half of the year.
They expect auto production and sales to pick up once supply chain disruptions ease.
Canadian exporters to the U.S. will be watching for signs of improvement. July’s employment figures, which are due out on Friday, could be a crucial indicator. Economists expect that the U.S. economy generated only 100,000 jobs in July—not enough to reduce the unemployment rate.
North of the border, business conditions appear to be improving, according to today’s RBC Canadian Manufacturing Purchasing Managers Index.
It found the rate of manufacturing expansion was slightly faster than that registered in June.
The index also found volumes of new work increased, employment growth continued and the rate of input price inflation eased to a seven-month low.