Memo Published October 1, 2013 · Updated October 1, 2013 · 3 minute read
Economic EKG: What the Last Debt Ceiling Crisis Did to Our Economic Health
Gabe Horwitz & Kimberly Pucher
The economic heartbeat of America is measured through a number of indicators—from job growth to consumer confidence. During the debt limit crisis of 2011, our nation’s EKG started to falter, triggering a drop in employment, confidence, manufacturing, and markets.
In this memo, we provide a snapshot of how six areas of the economy responded to what was merely a close call on default in 2011. Specifically, we look at our economic health four months before the crisis unfolded (March 2011-June 2011), the four-months during and immediately after the crisis (July 2011-October 2011), and the four months that followed (November 2011-February 2012). While other world events always have an effect on our nation’s economic health, there is little doubt that a simple threat of default was an attack on our recovery.
1. Monthly job growth took a 27.9% nosedive as businesses delayed hiring. Based on the four-month average before the default threat, it cost Americans more than 200,000 jobs.1
Total Nonfarm Employment Growth, Four Month Average
Before | During | After |
208,250 | 150,250 | 246,500 |
2. Part-time employment due to cut backs in hours, or the inability to find a full-time job rose by an average of 2.3%. This means more people were unable to get full-time jobs as a result of unfavorable business conditions.2
Part-Time Employment, Four Month Average
Before | During | After |
8,568,000 | 8,764,750 | 8,237,750 |
3. Consumer confidence fell 15.3% mirroring levels not seen since the recession. Consumer concern decreases consumer activity, negatively impacting GDP.3
Index of Consumer Sentiment, Four Month Average
Before | During | After |
70.8 | 60.0 | 71.0 |
4. Small businesses confidence fell by 2.1% as more businesses worried about the strength of the economy. This means more businesses were concerned about things like earnings, credit, sales, and employment.4
Small Business Optimism Index, Four Month Average
Before | During | After |
91.2 | 89.3 | 93.5 |
5. Manufacturing dropped 7.8%; the Institute for Supply Management (ISM) Manufacturing Index has yet to return to pre-debt crisis levels. This shows that manufacturing expansion slowed, negatively affecting employment, production, and new orders.5
ISM Manufacturing Index, Four Month Average
Before | During | After |
57.0 | 52.6 | 52.7 |
6. The four-month average of the S&P 500 Index lost 7.1% (this includes a 6.7% nosedive on August 8 after our credit was downgraded) costing the nation’s investors and 401K holders over $700 billion.6 The market didn’t return to pre-debt crisis levels until January 2012.7
S&P 500 Closing Price, Four Month Average
Before | During | After |
1,314.6 | 1,220.8 | 1,279.6 |
This is the damage that flirting with the debt ceiling inflicted on the economy. Do we really want to do this again? Even worse, do we really want to risk going over?
