Deal or no deal, economic signals show "double dip is back on the agenda."

New York traders watch President Obama."The market is starting to wonder where the growth is going to come from," said one analyst.
New York traders watch President Obama."The market is starting to wonder where the growth is going to come from," said one analyst. (RICHARD DREW / Associated Press)
Posted: August 03, 2011

WASHINGTON - The last-minute deal on the debt ceiling prevented a government default, but it does little to avert a perfect storm of economic problems that are pushing the nation toward a new downturn and more financial pain for millions of Americans.

Instead of increasing confidence in the future, the agreement, signed Tuesday afternoon by President Obama, seems to have underscored the near paralysis in Washington - and the fact that no substantial new efforts are likely for dealing with unemployment, lagging consumer spending, or a host of other problems dragging the economy down.

The stock market, with significant declines Monday and Tuesday, provided an early indicator that investors and business leaders see little to cheer about.

Fresh manufacturing data showed a sharp drop in new orders, back to mid-2009 levels. Europe's own debt crisis hit another bump. HSBC, the giant global banking company, added to the latest in a series of large-scale corporate layoffs as companies joined many analysts in beginning to downgrade economic forecasts after Friday's report of sputtering growth in the first half of this year.

"Double dip is back on the agenda," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Conn., reacting to the disappointing report on American manufacturing in July.

More bad news on unemployment and jobs is expected this Friday, adding to renewed fears that the economy could slide back into recession.

Indeed, despite the much ballyhooed political compromise that ended the debt-limit standoff, it was hard to find any substantial reason to hope the picture will get brighter in the months and years to come.

The deal put off serious cutbacks in federal spending in the early part of this decade to avoid draining dollars from the nation's stalling economy, and it could help the economic growth a bit if businesses feel more confident as some firms reportedly had been stockpiling cash in the event of a default.

But such potential gain is likely to be small, swamped by fundamental weaknesses in the economy that include a depressed housing market and, now, a pullback by one of the few players that had been driving the economy forward - Uncle Sam.

What's missing in the budget deal is a game plan to spur growth and jobs, said Kathy Bostjancic, an economist at the Conference Board, a business membership-supported research group.

Bostjancic says the budget agreement is positive, but she doesn't think it will do a whole lot to push companies to invest the $2 trillion in cash they have been sitting on.

"There's no timetable that suggests they have to do something with the cash," she said. "What's going to be the catalyst for growth?"

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