As Washington focuses on the debt ceiling, there are signs that the rest of the U.S. economy is running into trouble, according to the Dow Jones Economic Sentiment Indicator. In July, the ESI dropped to 41.5 from a reading of 44 in June.
The indicator has now fallen for two consecutive months for a cumulative decline of 5.1, the worst two-month drop since the fall of 2008.
“It would be easy to blame the dip in the ESI on the U.S. debt crisis, but much of the gloom stems from Main Street rather than Washington,” says Dow Jones Newswires "Money Talks" columnist Alen Mattich. “The readings this summer have fallen enough that it seems to suggest a slide back into recession is a real risk.”
Coverage of the need to raise the national debt ceiling was a factor in the decline, but a detailed analysis shows a substantial number of reports on problems beyond the Beltway. The proposal to close 10% of post offices, disappointing corporate earnings reports and a lagging housing market are some of the themes that contributed to the darkening mood.
A persistent theme in the July was the continuing economic toll of high oil prices. When oil prices spiked last year, coverage was in some cases favorable, portraying the rise as a symptom of global and domestic economic recovery. Now coverage of higher oil prices is much gloomier, focusing on the toll it is imposing on businesses and consumers alike.
The ESI is determined by in-depth sentiment analysis of national news coverage across 15 daily newspapers. It is reported on a scale of 0 to 100; higher numbers represent increasingly positive sentiment.
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