S&P Downgrades US Credit Rating from AAA

The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday in an unprecedented reversal of fortune for the world's largest economy.

S&P cut the long-term US credit rating by one notch to AA-plus on concerns about the government's budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.

The decision follows a fierce political battle in Congress over cutting spending and raising taxes to reduce the government's debt burden and allow its statutory borrowing limit to be raised.

On Aug. 2, President Barack Obama signed legislation designed to reduce the fiscal deficit by $2.1 trillion over 10 years. But that was well short of the $4 trillion in savings S&P had called for as a good "down payment" on fixing America's finances.

The White House maintained silence in the immediate aftermath of S&P downgrade.

The political gridlock in Washington and the failure to seriously address U.S. long-term fiscal problems came against the backdrop of slowing U.S. economic growth and led to the worst week in the U.S. stock market in two years.

The S&P 500 stock index fell 10.8 per cent in the past 10 trading days on concerns that the US economy may head into another recession and because the European debt crisis has been growing worse as it spreads to Italy.

US Treasury bonds, once undisputedly seen as the safest security in the world, are now rated lower than bonds issued by countries such as Britain, Germany, France or Canada.

'DAUNTING' IMPLICATIONS

As the focus for investors shifted from the debate in Washington to the outlook for the global economy, even with the prospect of a downgrade, 30-year long bonds had their best week since December 2008 during the depth of the financial crisis.

USA Unemployment Claims Rise Again

In yet another sign that the job market is still stuck in a rut, more Americans filed for first-time unemployment benefits last week than the week before.

There were 418,000 initial unemployment claims filed in the week ended July 16, the Labor Department said Thursday.

That marks an increase of 10,000 initial claims since the previous week, and more than the 411,000 claims economists surveyed by Briefing.com had expected.

A level below 400,000 is typically associated with payroll growth and a lower unemployment rate -- but claims have persisted above that level for 16 straight weeks.

Minnesota's government shutdown has weighed on the overall number for at least two weeks. Roughly 1,750 of the new claims filed last week were due to the statewide shutdown, the Labor Department said. In the prior week, Minnesota had reported about 9,681 claims as a result of the shutdown.

But the shutdown ended Wednesday, when Governor Mark Dayton signed a $35.7 billion budget, and state employees are slowly returning to work.

Are my job skills useless?

New York also saw a huge influx of filings, due to the end of the school year.

More than 20,000 people in the state filed fresh unemployment claims in the week ending July 9 -- the most recent data available. Those employees included education contractors like bus drivers and cafeteria workers, but not necessarily teachers.

Layoffs in the auto industry were another major factor, as both Michigan and Ohio reported thousands of new claims.

"Auto production hasn't ramped up as quickly as we expected," said John Canally, economist with LPL Financial. "Claims are still stuck in no-man's land."

Where the Jobs Are

For the nation overall, the four-week moving average of initial claims --calculated to smooth out volatility -- fell. The average was 421,250 or 2,750 fewer claims than the week before.

Continuing claims -- which include people filing for the second week of benefits or more -- fell to 3,698,000 in the week ended July 9 -- in line with economists' forecasts.

The current unemployment rate is 9.2%