Weak economy overshadows debt deal

A shopper pays cash for sales merchandise December 26, 2000 at the Lakeline Mall in Austin, Texas. Stores were hoping that after Christmas shopping could salvage what seems to be a disappointing holiday season.

Kai Ryssdal: Onward now to the actual economy, the one that exists outside the Washington Beltway and those weeks of debt ceiling discussions. Surely now that there's a deal, it's time to break out the champagne, toast the end of uncertainty, onward and upward, all that?!

Yeah, no. Let's not get carried away. Investors certainly didn't today. We got fresh evidence of our economic quandary this morning. And there's some hand-wringing about whether this debt deal that we got and the deficit cutting that comes with it are good for what ails us.

Marketplace's Jeff Horwich has that story.


Jeff Horwich: Sorry to dim the post-deal-making glow, but it's bad out there. Last week, we learned GDP is barely growing. Today we found out a major index of U.S. manufacturing is slowing down. Here's economist Sean Incremona of 4Cast.

Sean Incremona: To be frank, it was a terrible number. It really only shows that there was marginal expansion in the manufacturing industry -- which, as the sector that the economy is sort of relying on to pull itself out, is very disappointing.

And here's Frank Fantozzi of Planned Financial Services, with some more pick-me-ups.

Frank Fantozzi: Slow growth in consumer spending, depressed conditions in the housing sector, dismal employment reports over the last two of three months. You still have limited access to credit for households and small business.

Whatever the merits of the debt ceiling plan, few people are touting it as a solution to the present malaise. Some economists argue federal spending and borrowing do weigh on the economy, and reigning them in is an important step to restoring business confidence. Others say cutting the deficit in the midst of a wilting recovery is about the worst thing we could do.

Mike Konczal is a fellow at the Roosevelt Institute.

Mike Konczal: The bigger problem is we really need the opposite of it -- we need to expand the deficit, through hiring people to do things, through short-term targeted tax cut to put money in people's pockets; spending more money to rebuild this country and get the economy going.

Former Federal Reserve Governor Randy Kroszner, now at the University of Chicago's Booth School of Business, says whether the deal is a job killer or a job creator depends on the execution. In particular, he says it could be a boon if it leads to real reform of the tax system.

Randy Kroszner: The structure could be implemented in a way that will lead to pro-growth and pro-jobs tax reforms. Or it potentially could be implemented in a botched way which doesn't build any credibility.

And while government may be tying its hands in terms of further stimulating the economy with money, Kroszner says there are other critical things it can do -- like advancing free trade agreements held up by the debt ceiling debate.

I'm Jeff Horwich for Marketplace.

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.

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