Updating the Economic Outlook

Updated assessments of the economic outlook have been colored by the last week’s wild swings in the stock market.  On August 8, the VIX, which measures expectations of volatility in the S&P 500 index, jumped to its highest level since the apex of the financial crisis in the weeks just after the collapse of Lehman Brothers. How quickly the mood shifts. Less than a month ago, the Dow Jones Industrial Average was approaching a new post-recession high. 

Investors’ despondency reflects data that show a slowing economy and stronger headwinds to growth in the coming quarters. The S&P downgrade of the US debt rating was only the proximate cause that brought this data, and the counterproductive course of things in Washington, into focus.