Signs are already emerging that the heated debate in the nation's capital over the budget crisis and the debt ceiling is sapping strength from the economy.
Consumers are growing cautious, investors are pulling out of stocks, small businesses are nervous and manufacturers are seeing delays in customer orders, according to business surveys, economic reports and interviews conducted by USA TODAY.
Even though Washington's political leaders say they have a deal to avert a default on the nation's debt, it seems clear that economic damage has already been done. How much damage remains to be seen. Since the economy is weak, like a bedridden patient recovering from major surgery, minor shocks can delay its recovery -- and even plunge it back into a critical state.
There's good reason for caution. If the U.S. fails to raise the debt ceiling quickly, interest rates on everything from mortgages to credit cards to student loans could start to tick higher. Banks will be more reluctant to make loans. Stocks will keep falling.
Worst of all: Consumers worried about the impact of Washington's actions will keep their wallets in their pockets. A steep decline in the stock market -- the Dow Jones industrial average has fallen six sessions in a row through Friday, losing nearly 5% -- is making many consumers feel less well-off.
If spending, already tepid, declines further, that will lead to more layoffs and put the economy on the road to another recession. That's bad news for an economy that is barely growing. On Friday, the Commerce Department reported that gross domestic product rose 1.3% in the second quarter, weaker than many economists had expected.
Several consumers contacted by USA TODAY say the debate is causing them to grow conservative. Cathy Haustein, of Pella, Iowa, says she was planning to buy a new car this summer. But the recent drop in the stock market and her concerns about the outcome of the debt-ceiling debate have forced her to wait until the clouds lift.
Anastacia Leach, a high school English teacher in Toledo, Ohio, was considering buying new windows for her home. Now she's not sure. "I'm hesitating spending any money whatsoever in fear of the stupidity of our representatives," she says.
Consumers across the country are pulling back, surveys show. Friday, the Thomson Reuters/University of Michigan survey of consumer sentiment in July fell to 63.7 from 71.5 in June, the worst reading since March 2009. Survey director Richard Curtin said in a statement that consumers "understand the meaning of the oft-repeated warnings of 'dire economic consequences'" coming from Washington.
Businesses are also feeling squeezed. Last week the Federal Reserve Bank of Kansas City's manufacturing survey showed that after a strong rebound in June, growth among factories ranging from food processors to high-tech manufacturers to auto-parts makers softened in July. A major factor: the debt-ceiling debate.
"The most common comment was that our customers are cautious until they have some idea of what the resolution of the debt-ceiling debate is going to be," says Chad Wilkerson, vice president of the Fed's Kansas City branch.
A dangerous lack of confidence
Mark Zandi, chief economist of Moody's Analytics, says the impasse in Washington has undermined business confidence just as concerns about other dark clouds -- high oil prices, Japanese supply disruptions and Midwest tornadoes and flooding -- were easing. IHS Chief Economist Nigel Gault said in a report Friday that "the willingness of consumers and businesses to take risks while the unedifying spectacle has been playing out" in Washington has diminished.
