On August 5, 2011, Standard & Poor, a credit rating company, downgraded the United States’ credit rating to AA+, one notch below AAA. This decision was a symbolic blow to the US’s economic supremacy that translated into a very real blow to the world’s stock exchanges. Many fear that the downgrade will lead to a deepening recession and stymie the hiring of new employees and slow down the recruiting process. But are these fears realistic?
The consensus of experts seems to be: probably not. Even without an AAA rating from S&P, U.S. debt still has a reputation as one of the safest investments in the world. While stocks did fall after the decrease in the credit rating, investors continued to purchase Treasury bonds. The continued confidence of investors speaks volumes about the true perception of the United States’ credit rating. Furthermore, all other credit rating institutions have maintained a AAA credit rating for the United States. The Treasury Department alleges that S&P’s calculations contained a $2 trillion error, to which S&P has not responded, and all statements released by S&P seem more concerned with the tense political climate in the US rather than economic concerns.
Analysts say that, over time, the downgrade could push up borrowing costs for the U.S. government or drive up interest rates for consumers and companies seeking mortgages, credit cards and business loans. However, the recruiting process would only be affected by a lasting downturn in the economy. A decade ago, Japan had its ratings downgraded to AA, and it didn’t have a strong long-term influence on its economy. Canada and Australia have also had their credit ratings downgraded in the past without suffering any significant lasting damage. Therefore, assuming the US economy follows the pattern of other major economic powers that have been downgraded in the past, there should be no major change to the recruiting process because of the downgrade.
While the short term outlook looks murky, once the economy absorbs the shock of the downgrade, experts expect everything to return to business as usual. The market has already rebounded slightly, and the continued confidence of investors in Treasury bonds bodes well for the future. The signs seem to be pointing to a stable although slower growth economic future for the United States. Ultimately the downgrade has little effect on hiring as several industries are growing and still struggling to find skilled workers.
Submitted by Guest Blogger Anne Berlow. Anne is a content specialist at Capterra, a business software industry leader.