Hurricane's damage could top $6 billion

Tropical Storm Irene was the first to make direct contact on New Jersey in 108 years, flooding towns like Pompton Lakes. NEW YORK (CNNMoney) -- Swaths of the Northeast still submerged under water face an arduous recovery as hundreds of homes remain clogged with mud and crushed roads isolate deluged communities. East coast residents and insurers also face billions of dollars in damages from Hurricane Irene. Print The damage to insured property is expected to range from $2 billion to $5 billion, according to an estimate from IHS Global Insight Analysis. Total economic losses, including uninsured, could range from $5 billion to $15 billion, according to IHS.

This is even higher than the estimate from catastrophe modeling firm AIR Worldwide, which projected that property losses from wind and storm surge damage could total from $3 billion to $6 billion. Kinetic Analysis Corp., which estimates the impact of natural and man-made disasters on the economy, said the damage could total $7 billion. Less than half of that -- some $3 billion -- will be covered by insurance, the company said. Officials from President Barack Obama's administration will travel Tuesday to Virginia, North Carolina and Vermont -- some of the hardest-hit states -- to survey ongoing response efforts, the Department of Homeland Security said. At least 27 deaths in nine states have been blamed on the storm known as Irene, with one person from Vermont still missing and feared dead. More than a day after Irene left the United States, floodwaters were still cresting late Monday night in Vermont. "It's just devastating," Gov. Peter Shumlin said Monday. "Whole communities under water, businesses, homes, obviously roads and bridges, rail transportation infrastructure. We've lost farmers' crops," he said. 0:00 / 1:08 Retailers see boost in Irene's wake Hundreds of people remained trapped Monday in communities cut off by raging floodwaters that damaged or destroyed 263 roads and bridges, Shumlin said. Exactly how many were stranded remained unclear, he said. Forecasters predicted the Passaic River in New Jersey would continue swelling Tuesday, doubling the level considered a "flood stage" in some areas. And the town of Prattsville, New York -- more than two hours away from the coastline -- is now virtually unrecognizable. The area flooded when Schoharie Creek rose more than 15 feet in less than 12 hours and intense rainfall funneling down the Catskill Mountains sent a volume of water greater than that of Niagara Falls -- both the American and Canadian sides -- crashing through town, Greene County Administrator Shaun Groden said. Hurricane Irene damage could reach billions "People can't go home. They have nothing, floors all mud, car on top of the deck. They've lost everything," said Elsie Stuppert, an employee of the Hideaway Hotel in Prattsville. With bridges destroyed all around them, 21 people who had been stranded in Prattsville were rescued Monday after four trips by a state police helicopter. In addition to the continuous flooding, residents up and down the East Coast are still contending with power outages. As of Monday, about 5 million customers were without power, said Craig Fugate, director of the Federal Emergency Management Agency, citing figures from the Department of Energy. That number was down from about 6 million earlier, he said. Connecticut Light & Power ( CNLTP ) reported Monday night that an estimated half million people had no power. Some customers might have to wait a week or more because of damage to the system. But the havoc Irene wreaked on transportation is only beginning to subside. Amtrak announced train service between New York and Boston will resume Tuesday. And airlines are recovering after canceling thousands of flights over the weekend. About 650,000 to 700,000 air travelers have been grounded since Friday because of flight cancellations prompted by Irene, said Daniel Baker, CEO of FlightAware.com, a flight tracking service. "I'm ready to go so I can go to work. Get to the airport, cancellation," said Jerry Delerme, who was trying to fly to New York from south Florida. It will take a few days for everyone to get where they want to go, said Mateo Leras, a spokesman for JetBlue ( JBLU ). Tuesday and Wednesday are usually the slowest air travel days of the week, which will help travelers get on the flights they want, said Todd Lehmacher, a spokesman for US Airways ( LCC , Fortune 500). The full extent of Irene's damage won't be known for some time. The U.S. government estimates that the cost from wind damage alone will exceed $1 billion. Analysts have put the total anticipated cost of Irene much higher. Still, shares of insurers Travelers Companies Inc. ( TRV , Fortune 500), Hartford Financial Services Group ( HIG , Fortune 500), and Allstate ( ALL , Fortune 500) rallied Monday on relief that the damages weren't worse. MetLife ( MET , Fortune 500) and Chubb Corp. ( CB , Fortune 500) also got a boost. 

Americans spend more in July

Consumers picked up their spending 0.8% in July, a slightly encouraging sign for the economy after they cut back just a month before. NEW YORK (CNNMoney) -- After holding back the month before, American consumers spent their hard-earned money a bit more freely in July. Personal spending rose $88.4 billion, or 0.8% in July, after falling 0.1% in June, the Commerce Department reported Monday. Print The data was seen as slightly encouraging news after other recent reports have shown weakness in the U.S. economy.

Consumer spending accounts for roughly 70% of U.S. economic activity, but so far, it has recovered sluggishly from the financial crisis. Against that backdrop, economists immediately called Monday's data "encouraging," "decent" and "solid," and said it makes the odds of a double-dip recession less likely. Paul Dales, senior economist with Capital Economics, raised his outlook for third-quarter economic growth to 2.5% after the report was released, up from his previous forecast of 1.5% growth. But he was also quick to caution that July spending still just one month of data, and does not yet include the impact of August's stock-market plunge, dismal economic headlines and Hurricane Irene. "It is possible, and probably likely, that the August data will be weaker," he said. You paid what?! Where the money went: Spending increased most notably on durable goods, a category that includes long-lasting products like cars and appliances. Consumers had previously cut back their spending on durables for four straight months, so a blip up was considered a welcome rebound. Economists say much of that rebound was probably due an increase in car sales, which had been subdue following supply disruptions from the Japanese earthquake in March. Spending on services and non-durable goods also rose modestly in July. Where the money came from: The increase in spending was funded partially by rising incomes, which include not just wages and salaries, but also government-provided benefits like Social Security, Medicare or unemployment insurance, rental income and earnings from investments. Overall, personal income rose 0.3% in July, after increasing 0.2% the month before. But spending was also fueled by consumers stashing less of their cash in savings. Savings as a percentage of income fell to 5% in July, down from 5.5% the month before. "That's not a long-term sustained way of funding your spending," Dales said. 0:00 / 1:08 Retailers see boost in Irene's wake Inflation: The prices consumers paid on goods and services rose 0.4% in July, the government report said, marking a turnaround from June, when prices fell 0.1%. Core PCE, which excludes volatile energy and food prices, rose 0.2%. The Federal Reserve closely monitors this inflation reading to guide its policy decisionmaking. Over the last 12 months, core PCE has risen 1.6%, staying within the Fed's comfort zone of 1% to 2% inflation.  

Inflation (CPI)

Food prices are up 4.2% and gas rose 33.6% over the last 12 months. Stripping out those items though, consumer prices are up 1.8%, according to government data released Thursday. NEW YORK (CNNMoney) -- Americans paid more for necessities like gas, food, clothing and shelter in July, as prices rose more than expected over the month. The Consumer Price Index, the government's key inflation measure, rose 0.5% in July, led by a 4.7% increase in gas prices. Print That's worrisome, said Daniel Penrod, senior industry analyst with the California Credit Union League, considering many Americans are still struggling amid high unemployment and low home prices.

"We're looking at a situation where income isn't growing, so large price jumps right now without job growth and income growth behind it, basically mean that consumers are looking at more of their money going out the door at a time when less of it's coming back in on an income side," Penrod said. Food prices rose 0.4% and the cost of shelter rose 0.3% in July. Higher clothing prices, predicted by the industry earlier this year, have also taken hold. Apparel prices rose 1.2% in July alone, and over the last three months, are up 3.9%. Over the entire year, apparel prices have increased at their fastest rate since 1992. Part of that rise could still be due to cotton prices hitting a record high in March, following supply shortages. The weak dollar is also driving prices for imports, including clothing, higher, said Jennifer Lee, senior economist with BMO Capital Economics. "We import a lot of clothing from China for example, and a weak dollar means it costs more to ship to bring these goods over to the U.S." she said. 0:00 / 4:14 Band-aids and gum won't fix economy Economists hadn't expected the overall CPI number to come in as high as it did. Forecasts, according to a survey from Briefing.com, were for a 0.2% rise in July. Overall, consumer prices have risen 12 of the last 13 months, despite a one-month blip downward in June, and compared to a year ago, consumers are paying 3.6% more for goods and services. Bachmann: I'll bring back $2 gas Year-over-year, gas prices are still up 33.6%, even after falling slightly from their highs in May. Food prices are up 4.2% from a year ago. Both gas and food can be volatile though, so economists also look at a separate measure to better gauge inflation trends. So-called core CPI, which strips out those components, rose 1.8% over the last 12 months, and 0.2% in July alone, in line with economists' expectations. The Federal Reserve's comfort zone is for a core inflation rate to remain between 1% and 2% a year.  

Irene may cause gas price spike as one refinery shuts down

Analysts say up to 10% of the nation's refining capacity could be offline in the coming days thanks to Hurricane Irene. NEW YORK (CNNMoney) -- Hurricane Irene headed up the East Coast Saturday, threatening the nearly 10% of the nation's refining capacity that lies in Philadelphia, New Jersey and Delaware. Output for the refineries in the hurricane's path is over a million barrel per day, according to the Oil Price Information Service. Print Late Saturday, ConocoPhillips ( COP , Fortune 500) shut its Bayway refinery in Linden, N.J., according to the company's website. The refinery has a processing capacity of 238,000 barrels per day of light, low sulfur, crude oil.

Currently, the company's Trainer refinery in Trainer, Pa., which can process 185,000 barrels per day, remains open. ConocoPhillips is also preparing to shut down its East Coast Terminals. Analysts say refineries may close for several days thanks to Hurricane Irene. At PBF Energy refineries in Delaware and New Jersey, large ships have been sent to sea to avoid potential damage from crashing into docks, said Michael Gayda, the company's president. On Saturday, Gayda said the refineries were running at "planned rates" and that the company had put workers on double shifts "just to be cautious." Gas spending and prices by state Other pre-storm precautions include clearing away debris from drainage pipes and disassembling any construction equipment like cranes or scaffolding that could get blown down during the storm. Gayda said no decision has been made yet as to whether the refineries will shut down or move into a "warm" mode. That mode is a partial shutdown. The company is monitoring the weather via weather services that tailor forecasts specifically to the refineries before making that decision. "'We have a comprehensive emergency response plan in place," said Gayda. Gasoline futures traded in New York have already spiked, rising 10 cents a gallon last week, largely on fears there will be a disruption in output from the refineries, barge routes or pipelines serving the heavily populated eastern seaboard. That, combined with heavy travel during the upcoming Labor Day weekend, could send prices at the pump up 15 to 20 cents over the next couple of weeks, said Stephen Schork, publisher of the industry newsletter the Schork Report. "You'll probably see a temporary pop," said Schork. "It really all depends on how bad the disruptions are." Refineries are generally built to withstand winds from a category 5 hurricane. But they often rely on outside electricity to refine oil, and even downed wires inside the plant can cause trouble for the operation. Hurricane Irene barrels up the East Coast - CNN Irene is a Category 1 hurricane. Category 1 storms have sustained winds of 85 mph, with wind gusts of up to 105 mph. Winds of that speed are described as extremely dangerous and capable of causing extensive damage. "The restoration of power supplies is crucial, and electricity disruptions are common after a hurricane," according to an American Petroleum Institute hurricane fact sheet. 0:00 / 1:22 Insurers brace for stormy sell-off It's far better for refineries begin an orderly shut down of their facilities, which can take many hours, than deal with a sudden power outage that could lead to dangerous conditions, said Tom Kloza, chief oil analyst at the OPIS. Kloza expects retail gas prices, which edged up to $3.604 a gallon Saturday from $3.592 on Friday, will keep rising as the spike in futures prices from last week works its way into the market. But both he and Schork think that over the long run, gas prices should fall. Schork noted that come mid-September the nation shifts to less expensive "winter gas," which doesn't need to be refined as much because the cooler air is less conducive to smog formation. And Kloza noted that despite all the hype around the hurricane, the end result is that big storms tend to keep people off the road. "Bottom line: Hurricanes are much more reliable demand destroyers than supply destroyers," he said.  

Weak growth. Monster debt. Which to tackle first?

NEW YORK (CNNMoney) -- It's easy to read the latest budget outlook from the Congressional Budget Office as further proof that the United States really needs to get serious about dealing with the national debt. But if that's all that lawmakers take away, they will have missed a big point. Print The CBO is not in the business of telling Congress what to do. But it is in the business of showing Congress how what it chooses to do may affect the country's economic future. One of the big lessons in the latest CBO analysis is that lawmakers should tread carefully when deciding how to tamp down debt so as not to unduly upend economic growth.

The CBO believes economic growth in the next few years will be modest. That's assuming three big things: the Bush-era tax cuts would expire, resulting in bigger tax bills; spending cuts would be enacted as per the recently passed Budget Control Act; and stimulus measures -- such as extended unemployment benefits -- will have run out. If all that comes to pass, the agency estimates that growth in 2013 would be between 1.5% and 3.5% lower than would otherwise be the case. That's not surprising. Given the already slow economic recovery and the fact that interest rates can't fall much farther, "reductions in government spending or an increase in taxes ... will slow economic growth and reduce employment," CBO director Douglas Elmendorf said in a meeting with reporters. At the same time, letting the debt grow unbridled can also hurt future economic growth. Big deficit for 2011, but some improvement on tap So what's a partisan-driven policymaker to do? Don't be a slave to ideology and apply a little finesse to your task. "It's possible to structure deficit reduction in a way that does not have as large a dampening effect on output and employment in the near term while still achieving significant deficit reduction over the decade and the longer term," Elmendorf said. "That amounts principally to having the policy changes take place later." That is, policymakers could support near-term economic growth by increasing spending (or at least not cutting it) and lowering taxes (or at least not raising them). The potential negative effects of those policy actions on the debt could be offset or more than offset so long as they are simultaneously paired with measures that impose medium- and long-term fiscal restraint -- namely lower spending and higher tax revenue, he explained. Finesse will also be required when it comes to choosing which types of belt tightening to enact. That's because not all spending cuts (or tax hikes) are created equal. 0:00 / 3:01 Lobbying the 'Super 12' "The composition of the policy actions to narrow the budget deficit can matter a great deal to the future state of the economy and also, of course, matter a great deal to what sorts of public and private goods and services this country has," Elmendorf said. For example, raising tax rates may discourage work and savings. But increasing revenue by ending some tax breaks may have a positive effect on the economy. That's because people will base decisions more on the economic merits of a move rather than on whether it's deductible. Similarly, some spending cuts will reduce consumption while others will reduce investments in the economy. There's no perfect formula for how to get all of this right. But there is one unambiguous way lawmakers can support economic growth, Elmendorf suggested. Laying out a long-term fiscal path sooner rather than later. "Uncertainty about government policy is not helpful for encouraging household spending, business investment ... and decisions to hire. Earlier resolution of how fiscal policy will play out will be good for economic growth."  

Foreclosure settlement: Spat among the states

A mortgage foreclosure settlement is being held up by a dispute among the states. WASHINGTON (CNNMoney) -- A deal to help victims of improper foreclosures has been slow going, in large part because of infighting among state attorneys general over giving banks a free pass from future lawsuits. The talks are between the attorneys general and federal agencies on one side, and the five largest mortgage servicers, which comprise nearly 60% of the market: Bank of America ( BAC , Fortune 500), Wells Fargo ( WFC , Fortune 500), J.P. Morgan Chase ( JPM , Fortune 500), Citigroup ( C , Fortune 500) and Ally Financial ( GJM ). Print Comment Attorneys general in states with stronger fraud enforcement laws, such as New York, Delaware and Massachusetts, don't want to give up the right to go after banks in future fraud lawsuits.

And a few other state attorneys general have balked at the draft versions they consider too tough on the banks, according to sources familiar with the talks. The infighting came to a head Tuesday, when Iowa Attorney General Tom Miller -- who had been leading the talks on behalf of the states --- booted New York Attorney General Eric Schneiderman from an executive team, accusing Schneiderman of "working to actively undermine" a deal with the states. A call to the New York Attorney General's office was not immediately returned. At the heart of the talks are wholesale changes in the policies and practices of mortgage servicing that could help consumers, especially those behind on payments. But the banks, while willing to commit to some massive changes, are pushing for immunity from future lawsuits. Also at stake is a reported $20 billion pot of money, to be collected from the banks, that states could use to modify mortgages and counsel underwater homeowners, according to sources familiar with the talks. 0:00 / 2:07 Mortgage denied despite perfect credit Schneiderman has been tough on the banks. Earlier this month, his office filed a motion to oppose a proposed $8.5 billion settlement between investors and Bank of America and the Bank of New York over bad mortgage-backed securities. Schneiderman called that deal "unfair and inadequate" in court records. Number of troubled mortgages on the rise again He has his own broad investigation into banks that sold mortgages to investors, zeroing in on some of the same banks involved in the settlement talks. Schneiderman's probe targets the practice of assigning and bundling mortgages into securities, sources familiar with that investigation have said. And he has said over the past several months that any deal with banks on foreclosure practices shouldn't prevent individual states from their own investigations into the mortgage-servicing industry. If New York pulls out entirely, it could dampen down any final settlement award. But New York could still back the deal. The government probe of mortgage servicers followed reports that the institutions were using shoddy documentation to improperly foreclose on homeowners. That news prompted several servicers to halt foreclosures for a short period of time. The attorneys general launched the probe in October to review improper documentation and mortgage modifications. Federal government agencies involved include the Department of Justice, the Department of Housing and Urban Development, the Department of Treasury, the Federal Trade Commission as well as the new Consumer Financial Protection Bureau. 

Rise in durable goods orders is a "relief"

A spike in aircraft orders in July lead to a rare piece of good economic news Wednesday. NEW YORK (CNNMoney) -- Strong aircraft orders in July resulted in a much stronger-than-expected reading for big ticket item orders, a rare piece of good news amid the string of disappointing economic readings in recent months. The Commerce Department reported a 4% jump in orders for durable goods, compared to a 1.3% decline in June. Economists surveyed by Briefing.com had forecast only a 1.9% rise in the month. Print A 43.4% spike in orders for nondefense aircraft and an 11.5% rise in new vehicle orders led the way to the better than expected result.

American Airlines ( AMR , Fortune 500) announced a massive order for 460 aircraft on July 20. But only the 200 of the aircraft it ordered from U.S. aircraft maker Boeing ( BA , Fortune 500) would have been counted in Wednesday's reading, because the other aircraft will be sold by Boeing's European rival Airbus. Stripping out those results reveals a far weaker level of demand from businesses and consumers; orders excluding transportation goods rose only 0.7%. There were drops in new orders for such items as computers and electronics, machinery, communication equipment and fabricated metal products. "Orders are certainly not as good as they look," said Paul Dales, senior U.S. economist for Capital Economics. "Nonetheless, they still suggest that business investment growth may actually accelerate in the third quarter." He said the 0.7% rise in non-transportation orders, rather than the 0.5% drop forecast by economists, was a "relief." 0:00 / 3:44 American Airlines' spending spree Still, non-defense, non-aircraft capital goods orders were down 1.5%. That category is typically used as a proxy for demand from businesses and therefore seen by economists as the core reading in the report. But Peter Newland of Barclays Capital said that is at least partly explained by the regular drop in orders in the first month of a new quarter. "While we would play down the significant boost to orders growth from the volatile aircraft component, we would also play down the weakness of core orders given the apparent monthly pattern," he said. The strong headline number and the modest gain outside of transportation was enough to cheer investors. While stock futures had been down, pointing to a lower significantly open, before the 8:30 a.m. ET report, major indexes opened down only slightly an hour later. 

White House vs. red tape

President Obama asked agencies to eliminate outdated rules and regulations. WASHINGTON (CNNMoney) -- President Obama's budget office on Tuesday released its list of unneeded rules that will be rubbed off the books to save business some $10 billion over the next five years. The move is Obama's big nod to Big Business, and part of an ongoing effort by the White House to address complaints lobbed by industry groups and Republicans -- that bureaucratic red tape and new rules have been putting a crunch on job creation. Print Cass Sunstein, administrator of the Office of Information and Regulatory Affairs, said that 26 agencies submitted more than 500 rules whose deletion either saves money or reduces red tape for businesses. Many of these agencies are required by law or by historic practice to scrub their books of old outdated rules anyway.

Indeed some of the changes announced were already underway before President Obama's call to cut red tape in January. (Feds look to shorten airport customs waits) However, Sunstein said Tuesday's announcement is significant because of its breadth and depth. "We haven't had in history this kind of sustained, presidentially driven requirement for a look back" on rules on the books, Sunstein said. Among the changes the White House is touting: -- More patients with Medicare or Medicaid living in rural areas will get treatment by doctors through the use of so-called "telemedicine" -- treatment with the help of high-speed Internet resources. The move will allow doctors to diagnose patients at far-flung hospitals without forcing doctors to go through the process of getting credentialed at each far-flung hospital and will save hospitals $13.6 million, according to the White House. -- New applicants for federal benefit programs such as Social Security will have to get their benefits through electronic payments, such as on a debit card or direct deposit to a bank accoun. The move that will save Treasury $120 million each year by eliminating paper checks. Existing beneficiaries will have to also make the switch by March 2013. -- Some 60,000 contractors with the Department of Defense will get paid faster, using a system to speed up pay to all small businesses that was formerly used only for disadvantaged businesses. The White House's plans drew tepid response from industry groups that have been complaining about new rules implementing expanded health care coverage, Wall Street reform and improved air quality standards. 0:00 / 1:05 Best retirement plans for small biz "The results of this lookback will not have a material impact on the real regulatory burdens facing businesses today," said Bill Kovacs, a senior vice president at the U.S. Chamber of Commerce. But Sunstein pushed back on such accusations that the administration is costing businesses, saying that if $10 billion in savings is a "drop in the bucket, I'd really like to see that bucket." Sunstein pointed out that the Office of Budget Management has estimated the cost of "economically significant" rules as higher during the Bush administration's tenure in 2007 and 2008 than during the first two years of the Obama administration in 2009 and 2010. However, most of the new legislation Congress passed, such as health care and Wall Street reforms -- which will usher in thousands of new rules -- just started going into effect in 2011. "We are implementing Dodd-Frank and we are implanting health care. And we're doing both in a way attuned to the burden minimization and cost reduction," Sunstein said. 

Economists: Fed should stay put for now

Economists hope Fed Chairman Ben Bernanke will stand pat when he speaks in Jackson Hole, Wy., on Friday. NEW YORK (CNNMoney) -- Economists aren't looking for Federal Reserve Chairman Ben Bernanke to announce some new plan to rescue the struggling U.S. economy in a much-anticipated speech this Friday. In fact, most will be happy if Bernanke and the Fed decide to stand pat, despite growing fears about the risks of a double dip recession. Print According to a survey of 16 leading economists by CNNMoney, 12 said they believe Bernanke is not about to signal some change in monetary policy, despite some market expectations that he will do so.

And a similar majority believes the Fed should not take any immediate steps to try to jumpstart the economy, even though it is dogged by sluggish hiring, weak spending and a falling stock market. Economists are generally unified in their opposition to additional asset purchases by the central bank, a controversial strategy known as quantitative easing or QE for short. Bernanke is speaking at the Kansas City Fed's annual economics confab in Jackson Hole, Wyo. Last year Bernanke used his speech there to lay the groundwork for a second round of purchases of Treasuries, or QE2. Since stocks enjoyed a strong and extended rally after that speech, many investors are hoping he'll signal QE3 is on the way this Friday. But that enthusiasm isn't shared by economists. "It's premature, and the potential costs exceed by a wide margin the possible benefits," said Patrick O'Keefe, director of economic research for accounting firm J.H. Cohn. O'Keefe said with interest rates already near record lows and the Fed's balance sheet bloated by previous efforts to help the economy, "further action would be equivalent to serving ice cream cake as the main entree at a weight loss clinic." There are a few ideas floated by economists for other steps the Fed could take. One is to lower the interest rates that the central bank pays on excess bank reserves, which would give bankers more incentive to lend out money rather than collect the low but safe returns guaranteed by the Fed. Several others voiced support for the Fed rotating out of short-term Treasuries and into long-term government debt, a policy known as "Operation Twist" in economic circles. But some economists said sparking growth is a job for Congress, not the Fed. Those in favor of fiscal stimulus from lawmakers said Bernanke should continue to voice support for such action in his remarks Friday. However, efforts by the Fed to buy additional Treasuries in order to further cut the cost of borrowing doesn't get much support from economists. "Fiscal imbalances in the U.S. and Europe need to be addressed, while consumer and business confidence needs to be restored," said Lynn Reaser, chief economist at the Fermanian Business & Economic Institute. Economists said there are plenty of risks if the Fed goes on another asset buying binge. It would force more money into the global economy, which some believe would drive up the costs of commodities such as oil and food, increasing costs for consumers and greatly limiting any benefits to the economy. But Bernanke and other defenders of QE2 deny inflation earlier this year was a result of the $600 billion in Treasury purchases. 0:00 / 4:03 Will Bernanke strike out? Beyond the economic risks, others are worried about the costs to the Fed's reputation if it decided to pump more money into economy, especially since three district bank presidents already voted against the Fed specifically saying it wants to keep rates low until mid-2013. Politicians, most notably Republican Presidential Rick Perry, are taking shots at Bernanke as well. "More asset purchases equals more dissent, more political heat, more criticism from other economists, but not much real economic impact," said Robert Brusca of FAO Economics. Still, some economists would like to see Bernanke risk that political backlash and signal that the Fed is ready to start buying assets again. "Additional asset purchases will lower long-term interest rates, support stock prices, and buoy confidence," said Mark Zandi, chief economist of Moody's Analytics. "Asset purchases aren't a slam dunk positive for the economy, but they are still very much a net positive." 

Falling gas prices: A blessing and a curse

NEW YORK (CNNMoney) -- Oil prices are falling once again, and relief at the gas pump is likely on the way too. But be careful what you wish for. Low gas prices can sometimes be more a symptom of a weakening economy, than a cure to consumers' woes. Print Crude oil briefly dipped below $80 a barrel on Friday, about 30% below its peak at $113.90 in April. Meanwhile, gasoline prices -- which often fall one to two weeks after oil -- were at a national average of $3.59 a gallon Friday.

Gas is likely to decline to around $3.50 a gallon in the next week, estimates Chris Lafakis, economist with Moody's Economy.com. That could be a good thing, he said. After all, lower gas prices give Americans more money in their wallets. At a time when sluggish consumer spending has been one of the biggest drags on the U.S. economy, that's a welcome change. The rule of thumb is that for every $1 decline in the price of oil, American consumers have an extra $3 billion to save, spend or pay down their debt over the course of an entire year. Track oil and other commodities In this case, if oil was to stay around the $80-a-barrel level for a year, that could essentially amount to a $90-billion-stimulus for consumers, Lafakis said. But that's not the entire story. Remember the 2008 recession? Gas prices fell then too, and it still wasn't enough to bail out the American consumer. "There's a fine line here. When falling prices cross the line into deflationary prices and economic activity freezes up, that becomes a real problem," said Phil Flynn, senior market analyst with PFG Best. Bachmann: I'll bring back $2 gas And the reason for the recent drop in oil prices is concerning. Uncertainty is high given all the political divide in Washington, the S&P downgrade and the escalating debt crisis in Europe. Weak data on jobs and housing lately certainly hasn't helped. Amid those factors, oil traders expect demand for oil and gasoline will fall. "The recent sell-off in oil is because of concern that we may be slipping back into a double-dip recession," Flynn said. "We're being driven by fear right now." 0:00 / 2:30 Scooters: 2-wheel money saver Of course, that fear is not just contained to oil traders -- it spills over into the general American public. If uncertainty gets to the point where it paralyzes small business owners from hiring, consumers from purchasing big-ticket items or investors from putting their money in stocks, the U.S. economy slows even further. "It's possible there could be a lot of things going wrong in the economy, and while a decline in oil prices would help to boost spending a little, it wouldn't completely offset weakness," Lafakis said. That said, economists, including Lafakis, aren't ready to predict such a dire scenario just yet. He thinks gross domestic product will continue to grow, but at slow pace of 2% in the second half of the year. "If that outlook turns out to be correct, then the decline in oil prices is just going to help consumers get through the rest of the year and help stave off that second recession," he said.  

Bachmann: I'll bring back $2 gas

GOP presidential hopeful Michele Bachmann blamed President Obama for increasing gas prices and said she would change that. NEW YORK (CNNMoney) -- President Michele Bachmann has a promise: $2 gas. "Under President Bachmann you will see gasoline come down below $2 a gallon again," Bachmann told a crowd Tuesday in South Carolina. "That will happen." Print Sure, politicians promise all kinds of things on the campaign trail. But Bachmann, a leading contender for the 2012 Republican nomination, is wading into truly tricky territory.

The price Americans pay at the pump is tied to the crude oil market -- a global system largely beyond the reach of Washington. It's certainly true that prices -- now about $3.50 a gallon on average -- have risen since President Obama took office. "The day that the president became president gasoline was $1.79 a gallon," Bachmann said. "Look what it is today." Of course, that's not the full story. When Obama took office, the country was mired in a terrible economic contraction. "That was in the 4th inning of the greatest recession of our lifetime," said Tom Kloza, chief oil analyst at the Oil Price Information Service. During recessions, demand for gasoline plummets as trucks pull off the road, companies cut back on travel and laid off workers drive fewer miles. Obama's desperate SPR oil play "You have to be careful what you wish for because the recipe for cheap prices these days is economic disaster," Kloza said. Since early 2009, the economy has recovered somewhat and demand for crude has risen. It has even spiked in the developing world -- especially in China, India and South America. Kloza said that increased crude demand is the principal driver behind higher gas prices. "We're going to have to recognize the rest of the world has this increasing appetite for oil," he said. "If we go below $2 a gallon, it probably means there has been a lot of wealth loss and we are in a deflationary period." There are some measures that could be taken to lower gas prices, according to Phil Flynn, a senior market analyst at PFG Best. 0:00 / 2:59 Saudi prince: Oil should be between $70-$80 A stronger dollar would take pressure off prices, and reducing the number of miles Americans drive in gasoline-powered cars would also weaken demand. "I never say never," Flynn said. "But whether or not Bachmann can do that in four years is a tall order." Bachmann did not lay out a specific plan to drop prices on Tuesday. But her campaign website says that as president, she would ease restrictions on drilling and roll back federal regulations on the shale gas industry. While increased oil and gas drilling in the United States may create good-paying jobs, reduce reliance on foreign oil and lower the trade deficit, it would have little impact on gas and oil prices. Drill baby drill won't lower gas prices That's because the amount of extra oil that could be produced from more drilling in this country is tiny compared to what the country -- and the world -- consumes. Plus, any extra oil the United States did produce would likely be quickly offset by a cut in OPEC production. According to a 2009 study from the government's Energy Information Administration, opening up to drilling areas off the East Coast, West Coast and the west coast of Florida would yield an extra 500,000 barrels a day by 2030. The world currently consumes 89 million barrels a day, and by then would likely be using over 100 million barrels. After OPEC got done adjusting its production to reflect the increased American output, gas prices might drop a whopping three cents a gallon, the study said. --CNNMoney's Steve Hargreaves contributed to this story.  

Runnin' scared: VIX fear gauge spikes 35%

Click the chart for more on VIX. NEW YORK (CNNMoney) -- Wall Street's key measure of volatility, the VIX, soared 35% Thursday following a quartet of downbeat economic reports and a dour outlook from Morgan Stanley. The CBOE Volatility index ( VIX ) jumped to close at 42.7 as all three major U.S. stock indexes plummeted. A VIX reading higher than 30 is considered a sign that investors are getting worried.

Print A gloomy report from Morgan Stanley renewed fears about a slowing global economic recovery, sending markets lower across the world. The bank warned that the U.S. and Europe were "hovering dangerously close" to a recession over the next 6 to 12 months. Perhaps most damning, Morgan Stanley said "policy errors" in both the U.S. and Europe had led to the global downgrade. However, the bank did say any recession would not be as severe as the one that crippled world economies in 2008. Pass the Pepto. Market volatility here to stay. European markets took a dive on the news, setting the stage for a sour U.S. stock open. Then four stateside reports delivered even more bad news. Jobless claims, home sales, inflation and Philadelphia regional manufacturing activity all fared worse than had been expected. Stock indexes -- and the VIX itself -- have seesawed over the past several days. Trading volumes began soaring after Standard & Poor's downgraded the U.S. credit rating, and a flurry of news since then has sent stock indexes swinging hundreds of points in both directions. Those wild intraday and day-to-day moves have put investors, and the VIX, into a tizzy. The fear gauge hit a two-year high last week at 48 after the S&P downgrade. Year-to-date, the VIX is up more than 140%. But even at recent highs, the fear gauge is still way below the peak level of almost 90 hit in October 2008 -- after Lehman Brothers collapsed.  

Manufacturing (ISM)

NEW YORK (CNNMoney) -- The manufacturing sector nearly stood still in July, according to new data released Monday. The Institute for Supply Management, a purchasing managers group, said Monday its manufacturing index fell to 50.9 in July, down 4.4 points from June. Print Comment It marked the sector's slowest growth since July 2009. Economists immediately called it "shockingly weak," "disappointing" and "not encouraging." "The U.S. ISM manufacturing report for July is a shocker and strongly suggests that the disappointing performance of the economy in the first half of the year was not just temporary," Paul Dales, senior U.S.

economist with Capital Economics, said in a research note. A reading above 50 indicates the manufacturing sector is growing. While the index has been above that level for 24 straight months, a reading of only 50.9 shows very slow growth at best. Economists surveyed by Briefing.com were expecting the number to come in at 54. Economy grinds to halt as consumers pull back In July, the reading on new orders -- which is forward-looking, slipped to 49.2, showing demand for future products is falling. It was the first time new orders had contracted since the recession ended in June 2009 -- a fact that Dales called "very worrying." The employment component of the index also fell to its lowest level since 2009, but remained at a level showing modest growth in hiring, at 53.5. Of the 18 manufacturing industries, 10 reported growth in July. The apparel, leather, plastics, textile, electrical equipment, food, machinery and chemical industries reported a contraction. 0:00 / 4:51 GE CEO: Bringing jobs back to the U.S. Stocks fell in mid-morning trading Monday following the weak manufacturing news. The markets had opened sharply higher due to optimism about the debt ceiling agreement reached over the weekend. But the poor ISM number appears to be yet another sign of how tepid the economic recovery is. The government reported Friday that the gross domestic product for the U.S. rose at an annualized pace of just 1.3% in the second quarter. And the growth for the first quarter was revised down to a mere 0.4%. 

Unemployment claims jump back above 400,000

The number of first-time filers for unemployment benefits rose more than expected last week to 408,000. NEW YORK (CNNMoney) -- The number of first-time filers for unemployment benefits rose more than expected last week and jumped back above the key 400,000 level, signaling that the job market remains stuck in the mud. There were 408,000 initial unemployment claims filed in the week ended Aug. 13, the Labor Department said Thursday, up 9,000 from an upwardly revised 399,000 the prior week. Print The figure was higher economists' forecasts for 400,000, according to consensus estimates from Briefing.com.

Initial claims have sat above 400,000 for the last 18 out of 19 weeks. The trend began at the start of April, when high oil prices, bad weather and Japan's tsunami were weighing on businesses. Claims barely broke below that level for the first time earlier this month, a welcome sign amid increasing concerns about an economic slowdown, only to jump right back in the latest week. While the drop below 400,000 was a positive sign, Wells Fargo economic analyst Tim Quinlan said it is still encouraging to see that claims didn't swing too far above the significant mark in the latest week. Still, for sustainable job growth and a lower unemployment rate, Quinlan said claims to need break into the 300,000 level and hold there consistently. Quinlan said he expects claims could experience a drop-off soon, especially as car manufacturers return from their seasonal summer shutdown periods. Because of the the supply disruptions resulting from the earthquake in Japan, Quinlan said most auto factories started their retooling shutdowns earlier in the year, and should be back online sooner than normal. Overall, the four-week moving average of initial claims -- calculated to smooth out volatility -- fell by 3,500 to 402,500 in the latest week. 0:00 / 2:42 Obama: Jobs ready to be made Continuing claims -- which include people filing for the second week of benefits or more -- increased by 7,000 to 3,695,000 in the week ended Aug 6, the most recent data available. That was more than economists' forecasts for 3,698,000. 

For the military clean energy saves lives

Minimizing the armed forces' dependence on oil saves soldiers' lives and the move towards renewables is a lifeline like no other for the green energy industry. (Click the image for more information.) NEW YORK (CNNMoney) -- One out of eight U.S. Army casualties in Iraq was the result of protecting fuel convoys. This statistic, derived from an Army study looking at fuel convoys in Iraq from 2003 to 2007, is a powerful incentive for the military to move away from oil and toward renewable energy, and that's exactly what it's doing. Print The true cost of the military's oil addiction Among the many incentives pushing the military to use less oil, reducing the number of casualties it takes to protect vulnerable fuel convoys is one of the most important.

View infographic From experimental solar-powered desert bases for the Marines to Navy robots that run on wave energy, the military is quickly becoming a leading buyer of cutting-edge renewable energy technology. For the armed services, the benefits extend beyond reducing fuel convoy casualties. A fighting force that isn't restricted by the reach of a tanker truck or weighted down by heavy batteries is more nimble and, as a result, more lethal. For renewable energy companies, the military is proving to be a vital customer, buying the latest in clean energy gadgets and encouraging private investment. The hope is the armed services can shepherd this technology to the point where it becomes commercially viable, much like it did a generation ago for GPS systems or the Internet. "Some people might get the impression they're throwing away money because some stuff doesn't work," said Rachel Sheinbein of CMEA Capital, a venture capital firm that invests in renewable energy companies. "But the ones that do work, the differences they make are huge." U.S. Marines: Use less oil, be more lethal A solar desert base: A hundred and fifty miles east of Los Angeles, the Marines are trying to figure out what works for them. This week is the second year in a row the Marines have constructed an "ExFOB" at the Twentynine Palms base deep in the California desert. Short for Experimental Forward Operating Base, the Marines are trying to see what devices can turn the most remote of military outposts into self-sufficient encampments. Being energy self sufficient in places like Iraq or Afghanistan isn't just a tree-hugging point of pride. These bases currently use diesel or other fuels to run generators that power everything from air conditioning in tents, to computers running battlefield management software. Fuel in Iraq generally arrives at big bases via tanker ships. The military didn't release specific statistics about convoy deaths in Afghanistan. But the logistical challenges there are huge. Fuel in Afghanistan is delivered via truck convoy from Pakistan to distribution centers. Other truck convoys then redistribute the fuel to smaller bases. All these convoys are big, slow-moving, explosive targets. In some cases fuel has to be helicoptered in. In addition to risking lives, that's also pricey. The military says it can cost up to $40-a-gallon to get fuel into the most remote and dangerous places. War veterans go solar Last year, the Marines bought solar panels that roll up like beach mats and can be stuffed into backpacks. During tests in Afghanistan, the mats were instrumental in reducing the number of batteries the Marines had to carry to run radios or laptops. This year the Marines are looking to buy larger, trailer-mounted solar panels that use advanced materials to generate twice the power of conventional silicon-based panels and can power an entire base. They are also testing fuel efficiency devices for their tactical vehicles. Ultimately, they hope to cut their fuel consumption 50% by 2025. Efforts like this are happening across the armed services, driven both by tactical concerns and mandates from Congress and the president. The Navy is experimenting with a surfboard-shaped, wave-powered robot from a company called Liquid Robotics that can be used to monitor the high seas at a significantly cheaper price than using a ship. They Navy is also experimenting with wave and tidal power devices, as well as using advanced biofuel to power its boats. The Air Force has long used biofuels as part of its fuel mix in planes, including second-generation fuels from algae and other plants that people don't eat. "We view ourselves as a target-rich environment," Secretary of the Army John McHugh said last week in announcing plans to provide wind and solar developers with Army land and long term agreements to buy their electricity. The Army aims to get 25% of its power from renewable sources by 2025. McHugh noted that the military accounts for 80% of the federal government's overall energy use and spends $15 billion a year on fuel. "This is the right thing to do for the environment, for the taxpayer and, most important, the right thing to do for our soldiers," he said. Sentiments like this are becoming increasingly common among military men and women -- a crowd not often thought of as the vanguard of the green energy movement. An executive from one of the world's largest wind turbine builders recently told CNNMoney that militaries the world over go to great lengths to accommodate their turbines near bases, even though they have a tendency to interfere with radar. One Army medic returning from Iraq recently switched his home to solar power. He said the amount of fuel he saw the U.S. military consume in Iraq was a driving factor. 0:00 / 2:06 Iraq War made me switch to solar "It would be naive to think that some of the money we spend doesn't find its way into the bad guys' hands," said Patrick Padilla, who saw heavy fighting in the Iraqi city of Ramadi in 2006. "If I can do my part to cut that down a little bit, then that's hopefully one less person getting shot at, like I had to go through." And Pentagon strategy papers have identified energy and resource conflicts as a prime driver for future wars. Whatever the reason for this interest in clean energy, it's a boon for companies in the alternative energy space. The golden customer: One of the biggest challenges for renewable energy firms, often small start-up companies, is credibility. "Having the military buy these systems proves they are reliable," said Ron Helfan, an executive with Israeli-based Essence Solar Solutions that's trying to sell an advanced solar power system to the Marines known as the Sun Spider. Alan Salzman, co-founder and CEO at VantagePoint Capital Partners, agrees. Salzman should know -- his firm reviews pitches from thousands of renewable energy companies and decides which ones to fund. "The military is a great reference customer," he said. "Just as good as any Fortune 100 company." The military also plays an important role in buying technologies that are currently too expensive for the general public. It's not that the military likes to waste cash. It's just that its world lends itself to a different set of cost-benefit calculations than civilian life -- think of the lives lost protecting fuel convoys and the $40-a-gallon price tag. The hope is that the military can buy these items and support the industry until further cost breakthroughs are made and the devices have wider commercial appeal. For Salzman, the military and renewable energy companies that's what it's ultimately all about -- designing and building products that make sense from a financial and operational point of view, whether that's for today's military or tomorrow's civilians. "This isn't about wearing hemp and walking to work," he said. "This is about finding better ways of doing things."  

Consumers shed debt ... a little

U.S. household debt, which includes mortgages, home equity lines, credit cards, auto loans and student debt fell to $11.4 trillion in the second quarter of 2011. NEW YORK (CNNMoney) -- Consumer borrowing fell slightly in the second quarter, as Americans shed more of their debt. A new report released Monday by the New York Federal Reserve -- which looks at mortgages, home equity lines, credit cards, auto loans and student debt held by consumers nationwide -- found that total consumer debt fell to $11.4 trillion in the second quarter of this year. That marked a $50 billion drop in total consumer debt from the prior quarter, a decrease so slight that the New York Fed called consumer borrowing "essentially flat." Print "This is more evidence that the pace of consumer deleveraging that began in late 2008 has slowed," Andrew Haughwout, vice president of the Research and Statistics Group at the New York Fed said in a statement.

Consumer debt remains 8.6% below its $12.5 trillion peak at the end of September 2008, just after the collapse of Lehman Brothers and the seizing of financial markets. Meet 7 extreme debtors Reeling from the shock of the recession, American households have been paying down their debt slowly for nine of the last 10 quarters. That trend is typically viewed as a healthy rebalancing step for the economy, but at the same time it also limits the recovery. At some point, consumer borrowing and spending will need to pick up in order for the U.S. recovery to truly take hold. That's why the ability to borrow money more easily is widely seen as an important step for economic growth. "The economy is certainly not going to recover that much until we see borrowing start to improve again," said Mark Vitner, Wells Fargo senior economist. "On the flip side, we're not going to go back to where we were before, where the recovery was being driven by overspending by consumers." Total household delinquency rates also continued to improve for the sixth quarter in a row, as overdue balances fell 15% from a year ago. 0:00 / 1:57 Three signs you're headed for extreme debt Housing: Mortgages by far account for the largest portion of consumer debt, totaling $8.5 trillion in the second quarter. Consumers have been cutting back on mortgage debt for nine of the last 10 quarters. Foreclosure rates have also started to improve. In the last quarter alone, new foreclosures fell about 23% to 284,000. New foreclosures had previously been as high as 566,180 just two years ago. Meanwhile, mortgage originations recently fell after increasing for three months in a row. New mortgages are now 3% below their year-ago level. Bankruptcies: About 284,000 Americans filed for bankruptcy in the second quarter, marking a 9.2% increase over the previous quarter. That said, bankruptcies still remain far below their post-recession peak of about 621,000 in the second quarter of 2010. Credit cards: Consumers have been consistently cutting back on credit card debt since the end of 2008. Credit card balances recently totaled $690 billion, or roughly 6% of all consumer debt. Credit card limits have now increased for two quarters in a row, including $60 billion or 2% in the latest quarter. This trend is considered a good sign that consumer credit markets are healing, the New York Fed said. My degree isn't worth the debt! Student loans: Student debt remains the one type of debt that continues to grow, despite the recession. In fact, it has either increased or remained flat every quarter since mid-2002. Student debt now totals $550 billion, or 4.8% of total consumer debt, according to the New York Fed. Auto loans: Auto loans were flat for the fourth quarter in a row, totaling $710 billion. The New York Fed compiles the household debt report by surveying an anonymous panel of homes across the country about their borrowing decisions. 

Who started the S&P downgrade rumor?

NEW YORK (CNNMoney) -- Credit rating agency Standard & Poor's downgrade of the U.S. sovereign debt rating on Aug. 5, which plunged stocks into a roller-coaster frenzy for the past week, didn't come as a surprise. S&P had warned the downgrade would occur if Congress couldn't agree to comprehensive deficit reduction as part of a deal to raise the debt ceiling. Print While S&P, a unit of McGraw-Hill Co.

( MHP , Fortune 500), didn't give any public statement about the timing of the move, by the morning of Aug. 5, rumors were rampant on Wall Street that the downgrade would come after the closing bell that day. Major stock indexes, which started higher on a better-than-expected jobs report that morning, were soon in negative territory, with the Dow Jones industrial average tumbling 240 points before rebounding to close modestly higher. The rumors turned out to be spot-on correct, as the downgrade was announced just after 8 p.m. ET. Now the Securities and Exchange Commission apparently wants to know where those rumors came from and how they spread. The Financial Times reported Friday that the SEC has opened an inquiry, asking S&P to let it know who knew of the downgrade decision before it was announced, as a preliminary look into a possible insider trading inquiry. The paper, citing an anonymous source, said the agency is not aware of a leak from any S&P insider or any aberrational trading that took place. 0:00 / 2:37 Feel the market madness at the NYSE close The SEC declined to comment on the report. S&P would not comment on any potential probe by the SEC, but said it had taken steps to keep the downgrade confidential before its release. "S&P takes its confidential information and securities trading policies, and the related securities regulation, very seriously," said the statement. "Our policies prohibit analysts or rating committee members from trading and holding securities or options of the companies or governments they rate. In addition, we have long standing policies and procedures in place regarding the appropriate handling, use and protection of confidential information." It wasn't just officials within S&P who knew of the pending downgrade. Earlier that day, the Treasury Department was notified by the credit agency that it intended to downgrade the nation's credit rating. Treasury officials challenged that decision, arguing S&P's budget analysis included a $2 trillion mistake. A senior administration official told CNN on background late on the afternoon of Aug. 5 that S&P was reconsidering its downgrade opinion. But while the credit rating agency changed its numbers to conform with Treasury's, it went ahead with the downgrade anyway. Some market analysts have questioned whether the downgrade was the major cause of market volatility this past week, since demand for U.S. Treasuries remained strong throughout the week. But others have argued the downgrade added to uncertainty and fed into fears that the United States is at an increased risk of a double-dip recession. 

Shoppers keep economy rolling

American consumers hit the stores in July, giving retail sales a modest boost in the month. NEW YORK (CNNMoney) -- Americans boosted their shopping in July, allaying -- for now -- fears of a consumer slowdown that might stall the economy. Retail sales rose 0.5% last month, aided by auto purchases, gasoline station sales and a jump in purchases of electronics, the Commerce Department said. Print Economists had expected a 0.5% gain, according to consensus estimates from Briefing. com, compared to a 0.1% gain in the previous month.

Given that July is a key month for back to school shopping -- the second most important sales event of the year after Christmas -- the fact that registers were ringing last month should also provide some comfort that consumers are ready and willing to spend when it matters. Industry watchers said the July retail sales will help ease growing concerns that consumer spending is losing momentum. 6 ways to save money on school supplies Those concerns were heightened after the government released its latest economic growth report last month that showed consumers shut their wallets in the second quarter, causing the U.S. economy to grow at a tepid pace. "The 0.5% rise in retail sales values supports our view that there will be at least some rebound in GDP growth in the third quarter and that another recession will, in all likelihood, be avoided," Paul Dales, senior U,S. Economist with Capital Economics, wrote in a note Friday. Gross domestic product, the broadest measure of the nation's economic health, rose at an annual rate of 1.3% in the second quarter. Growth in consumer was very mediocre, and picked up only 0.1% in the second quarter -- marking a significant slowdown from growth of 2.1% in the first three months of the year. A shutdown in consumer spending is particularly bad for the economy and its recovery since it accounts for two-thirds of all economic activity. 0:00 / 2:53 Roubini: Double dip more likely "At a time when fears of another recession have risen, the news that underlying [July] sales are rising offers some comfort," said Dales. Wells Fargo economist Mark Vitner said the government's retail report was a "welcome development that allays concerns about a double-dip recession." "In just the past few weeks, fears of a double-dip recession, coupled with congressional wrangling over the debt ceiling debate and the downgrade of U.S. Treasuries, have combined to make financial markets highly volatile," he said. "Today's retail sales report strikes a more positive tone, signaling a strong start for third-quarter consumer spending growth," Vitner added. The overall July sales number was helped by a moderate 0.4% gain in auto purchases. Sales excluding autos and auto parts were up a better-than-expected 0.5% in July, bolstered by a 1.6% rise in gasoline station sales and a 1.4% gain in gadget purchases sparked by back-to-school shopping that took place in the month. Economists surveyed by Briefing.com had forecast store sales, excluding auto purchases would be up 0.2%. Sales excluding auto purchases were unchanged in the prior month. Retailers did their part last month to entice shoppers into stores. The National Retail Federation, the industry's main trade group, said timely deals and discounts from merchants "hit the right chord with back-to-school shoppers, helping ease concerns that consumers were pulling back on spending." Shopping for school-related items also contributed to a 0.5% increases in clothing sales and a 0.5% rise in furniture sales. Sales at food and beverage sales rose 0.5%. These gains also seemed to coincide with retailers' own same-store sales numbers from earlier this month that showed robust gains in sales at discount, department and some specialty retailers in July. Back to school deals your 'friend' on Facebook Same-store sales reflect sales at stores open at least a year and are a key indicator of a retailers' performance. "Consumer spending reflects the confidence of the American people, and despite recent economic turbulence, we're still seeing widespread growth in spending," Acting U.S. Commerce Secretary Rebecca Blank said in a statement on Friday. However, the government report did show some sales weak spots. Among them, building materials sales slumped 0.4%, sales at sporting goods, hobby, book and music stores fell 1.5%, and department store sales also fell 0.8% last month. 

Unemployment claims fall to 4-month low

The number of first-time filers for unemployment benefits fell to 395,000 last week, the first time since April the figure has fallen below 400,000. NEW YORK (CNNMoney) -- At a time when the economy seems to be hanging by a thread, the Labor Department reported at least some better news about the job market Thursday. The number of first-time filers for unemployment benefits fell last week, dipping below 400,000 for the first time in four months. Print There were 395,000 initial unemployment claims filed in the week ended Aug. 6, the Labor Department said, down 7,000 from an upwardly revised 402,000 the prior week.

The figure beat economists' forecasts for 409,000, according to consensus estimates from Briefing.com. "It's a good sign," said Brett Ryan, U.S. economist with Deutsche Bank. "The trend in claims is going to be one of the most important things we watch over the next few weeks or so, to gauge whether we're entering another recession." Initial claims had shown improvement in the begining of the year, but then hit a speedbump in April as businesses held back on hiring in response to rising gas prices and the Japanese earthquake and tsunami. As a result, the initial claims figure had stayed above 400,000 for four months. Economists often say initial claims need to fall below that level before job growth is strong enough to put a dent in the unemployment rate. 0:00 / 2:53 Predicting the election with jobless rates By looking at the four-week moving average, which smoothes out volatility, economists can tell the figure is now trending downward -- a welcome sign given alarming forecasts about the U.S. economy possibly slipping into a double-dip recession. "The economy is in a pretty precarious spot right now, and the probability of a recession has gone up just in the last few weeks," Ryan said. "However, if these high frequency data points can manage to hang in there, and businesses decide to wait it out and not layoff workers, then there's a good chance we can avoid another recession." Pass the Pepto. Market volatility here to stay. Ryan said he will be closely monitoring weekly reports on initial claims, chain-store sales and consumer confidence readings, to gauge whether a second recession is truly in the cards. "What we're worried about is that the recent sell-off in global stock markets is going to have an impact on business sentiment and on consumer sentifiment," he said. "If you're a CEO and you see your stock price get chopped by 25%, you suddenly become less likely to hire people." Continuing claims -- which include people filing for the second week of benefits or more -- fell by 60,000 to 3,688,000 in the week ended July 23, the most recent data available. That was better than economists' forecasts for 3,700,000. The current unemployment rate is 9.1%. 

Reid's picks for debt super committee

Senators John Kerry, Patty Murray and Max Baucus will join a Congressional debt-cutting committee formed as part of the debt-ceiling deal. WASHINGTON (CNN) -- Senate Majority Leader Harry Reid made his picks Tuesday for the Congressional "super committee" that will face the unenviable task of finding trillions to slice from the federal budget. Reid, a Democrat from Nevada, said that he would appoint Senate Democratic Conference Secretary Patty Murray of Washington, Senate Finance Committee Chairman Max Baucus of Montana and Senate Foreign Relations Committee Chairman John Kerry of Massachusetts to the Joint Select Committee on Deficit Reduction. Print Murray was tapped to co-chair the committee. Under the debt ceiling deal passed by Congress and signed by President Barack Obama last week, a panel of 12 legislators -- six Democrats and six Republicans, equally divided between the House and Senate -- will be created to thrash out a plan for up to $1.5 trillion in deficit reduction.

Those cuts will come on top of an initial round of more than $900 billion in spending cuts that have already been locked into place. If the committee fails to reach agreement, or Congress fails to pass whatever package it recommends, a trigger mechanism will enact further across-the-board cuts in government spending, including for the military. "As the events of the past week have made clear, the world is watching the work of this committee," Reid said in a prepared statement. "I am confident that Senators Murray, Baucus and Kerry will bring the thoughtfulness, bipartisanship, and commitment to a balanced approach that will produce the best outcome for the American people." The Republican Senate appointments to the committee, and both the Republican and Democratic House appointments, have yet to be announced.  

Home Prices

NEW YORK (CNNMoney) -- May home prices in 20 major cities dipped 4.5% from one year ago, marking a continued decline in the already battered housing market. The S&P/Case-Shiller report posted declines in both its 20-city composite and its 10-city index, which declined 3.6% year-over-year. Print But housing did show some signs of life in May. Home prices ticked higher for the second consecutive month following an eight-month slide. In May the 20-city index gained 1% compared with a month earlier, while the 10-city index rose 1.1% month-over-month.

David Blitzer, a spokesman for S&P, was cautious in detailing the index gains. "While the monthly data were encouraging, most [metro areas] and both composites fared poorly in annual terms," he said. Prices are also still off more than 32% from their highs, set in July, 2006 and hover at about the same level they were in mid-2003. According to Mike Larson, a housing market analyst for Weiss Research, the market is going nowhere fast. "I like to picture it as a sailing ship caught in the doldrums," he said. "You're no longer being swept away by a hurricane but you're not moving much either." 0:00 / 4:41 Tips on cashing in on the housing slump Blitzer attributed much of the home price increase for May to seasonal effects. Spring is the hottest time of year for home buying and the added demand usually drives prices higher. Taking those seasonal factors into account, the 20-city index was flat and the 10-city showed a gain of just 0.1%. Sixteen metro areas recorded non-seasonally adjusted month-over-month gains in May. The biggest winner was Boston, where prices jumped 2.7%, followed by Minneapolis at 2.6% and Washington at 2.4%. The nation's capital was the only place to record a gain over the past 12 months, up 1.3%. Three cities declined month-over-month, led by Detroit with a 2.8% drop, Las Vegas, with a 0.9% decline, and Tampa, where prices fell 0.6%. The biggest loser over the past 12 months was Minneapolis, where prices fell 11.7%. Case and Shiller's takes The positive aspects of the report has caused Robert Shiller, the Yale economist who, with his colleague, Karl Case, devised the index, to soften -- a little -- what had been an alarmingly pessimistic prediction for the housing market. He had warned back in February that home prices could drop another 10% to 25% over the next few years. "The recent data lowers the probability of that scenario a little bit, but I still worry about it," he said. His colleague, Karl Case, was more positive. 0:00 / 2:39 Holy Home! Living in a church "There is a big difference between bouncing along a downward drift and bouncing along a rocky bottom," he said. "The fact that prices in a repeat sales index and using a three month moving average actually went up, seems to me, says something important." Case, however, also mentioned several negative factors having impact on the housing market right now or that will in the near future. "First, it is difficult for home buyers to qualify for a mortgage," he said.. "Second, Fannie Mae and Freddie Mac will lower the size of conforming mortgages on Oct. 1. Finally, consumer sentiment is still poor." Shiller also brought up the weak labor market. An unemployment rate of 9.2% in June acts as a strong headwind for housing.  

Mystery surrounds details of S&P downgrade

WASHINGTON (CNNMoney) -- Little is known about key details that led Standard & Poor's to downgrade U.S. debt late Friday, despite its outsized repurcussions. While the move knocking U.S. debt down a notch from the lofty AAA rating has exacerbated an already skittish stock market and drawn criticism from the White House, key details are a mystery. Print S&P doesn't say who, exactly, made the decision at the company; what kind of weight they gave U.S.

politics versus ability to pay; or to what extent they felt pressured to downgrade the United States in response to criticism of its downgrades of risky European nations. Standard & Poor's is one of three major credit rating agencies -- along with Moody's and Fitch -- that make money by giving grades on how likely it believes that a nation, municpal government or company will pay off its debt. However, the rating companies are unregulated, even as their ratings garner big-time consequences. And while S&P officials have talked about the "flavor of some of the assumptions," including their doubts about the ability of Congress and the White House to work together to cut deficits, they don't have to reveal details of their discussions. During the financial crisis, these same agencies got hammered for their decision to give top grades to securities based on risky mortgages made to homeowners destined to default on their loans. And while their grades to sovereign debt haven't been as tarnished as their grades to mortgage-backed securities, critics in both cases have questioned the greater significance for the markets. "They're just information providers, although (the big three) have certainly attained substantial prominence as providers of information," said Lawrence White, an economics professor at the Stern School of Business at New York University. "They're not government agencies; they're not under the same kind of transparency requirements that a government agency would be under." What do we know? Two S&P top analysts, David Beers and John Chambers, may have played a key role, since they've been the public face of S&P's public relations' campaign to defend the downgrade of U.S. debt from AAA to AA+. The decision was made by a panel of 5 to 9 people, according to a spokesman who didn't respond to requests about who was on the panel. S&P President Deven Sharma told lawmakers at a House hearing two weeks ago that analysts involved in rating sovereign debt are in "regular ongoing dialogue" with Treasury officials. But Sharma said he had not spoken directly to Treasury Secretary Tim Geithner. Chambers went into some details about what went into the decision, saying the "political settings," including the "debacle of raising of the debt ceiling," played a role. He also said that the U.S. fiscal situation, and S&P's assumption that the debt burden will grow under "any scenario," was the other big downgrade factor. Beers said that other factors that S&P looks at when considering a grade remained unchanged, such as the risk associated with the strength of the dollar, U.S. liquidity of investments and even the economic structure and growth prospects. 0:00 / 4:17 S&P: Tax rich to stabilize U.S. rating One big difference between S&P and other credit rating agencies such as Moody's and Fitch, is the weight S&P gives to politics as a factor in a possible default, said Dan Alpert, managing director of Westwood Capital, an investment bank in New York. Other credit rating agencies base their ratings more on a nation's ability to pay, he added. "This is a spanking to the U.S. Congress and the White House," Alpert said. As a part of the Dodd-Frank financial reform law, Congress tried to deflate the significance of a credit rating agency's scores. Part of the reason the ratings are so watched is that U.S. law, as well as the laws of many other nations, require the rating agencies to grade certain financial products and debt to determine whether such investments are safe. In Dodd-Frank, lawmakers ordered regulators to eliminate such reliance on credit rating agencies. But that effort has been slow going, regulators said at a recent hearing on Capitol Hill. Even with the changes, the big three rating agencies will continue to play a major role in the U.S. financial system, although "it's possible there would be more information purveyors and the relative importance of S&P and Moody's could diminish, " White said. 

Moody's: Why we're not downgrading U.S. yet

NEW YORK (CNNMoney) -- Moody's Investors Service explained Monday why it was sticking with its triple-A bond rating and negative outlook for the United States, setting itself apart from Standard & Poor's, which downgraded the U.S. last week. Moody's said it expects the economy will improve and additional measures to reduce the budget deficit will be in place by 2013. The rating agency said this is why it reiterated its AAA rating for U.S. debt on Aug.

2, when the Senate agreed on a 10-year plan to reduce the deficit by more than $2 trillion. Print But Moody's said that its negative outlook, which it also assigned on Aug. 2, was due to political squabbling in Washington -- the biggest potential threat to the bond rating. "We expect the economic recovery will continue and additional budget deficit reduction initiatives will be put in place by 2013," said Moody's, in its report on Monday. "The political parties now appear to share similar deficit reduction objectives." But Moody's also said, "However, the disagreement between the two parties over the means by which to achieve deficit reduction and the difficulties experienced in reaching a compromise on raising the debt ceiling highlight the risks of political polarization. This uncertainty is among the drivers of our negative outlook." U.S. downgrade: Did S&P get it right? Moody's released this explainer three days after S&P downgraded the credit rating of the United States on Friday. S&P said that it wasn't enough for lawmakers on both sides of the aisle to agree to raise the debt ceiling -- that the U.S. also needed a "credible" plan to tackle long-term debt. 0:00 / 2:50 S&P: Why we downgraded the U.S. S&P also highlighted political bickering as a key factor in undermining its confidence in U.S. debt, with governance "becoming less stable, less effective and less predictable than what we previously believed." 

Government workers catch break

Teacher Rachel Zertuche is one of many who lost their jobs. NEW YORK (CNNMoney) -- The state and local government jobs sector held up surprisingly well in July, but it isn't reason to cheer. Some 39,000 government jobs were lost last month, the Labor Department said Friday. Many of them were state workers in Minnesota temporarily laid off during the 20-day state shutdown, as well as teachers from across the nation. Print The loss was better than some expected, as was the Friday jobs report, which showed a gain of 117,000 jobs overall.

IHS Global Insight had forecast a loss of 50,000 state and local government jobs. But state and local workers aren't out of the woods. The next two months could continue to show big losses as governments continue to wrestle with the weak economy. "With state and cities facing very tight budget restrictions, there is a high probability that many of the summer layoffs in the education sector will not be re-hired when the school year starts," said Greg Daco, U.S. economist for IHS Global Insight. "This could potentially lead to heavy losses on that front." The sector could still turn in its worst quarterly performance in nearly 30 years, Daco said. Some 108,000 jobs were shed in the third quarter of 1982. All told, the state and local government sector has lost 611,000 jobs since its peak in September 2008. Some 237,000 of those have been in education. How long do unemployment benefits last in your state? Teachers and other school employees are bearing the brunt of the public sector layoffs in the wake of the Great Recession. While they are often dismissed temporarily over the summer, more are getting the ax this year because of major state budget cuts to public education. And fewer are expected to get rehired in September, leading to the grim estimates for the quarter. Rachel Zertuche of Austin, Texas, is one of those educators looking for a new job. The 6th grade social studies teacher was let go after more than six years in Austin classrooms. While she hunts for a new position, the new mom is commuting 26 miles to work part-time in an office and taking some proofreading jobs. Her husband, a cook in an upscale restaurant, took a second job at Romano's Macaroni Grill. Competition for teaching jobs is stiff, she said. "There are so many of us who were laid off," said Zertuche, who has been teaching a total of 14 years. "We're all scurrying for the same positions." Around the country, districts are sending thousands of workers to the unemployment office. In years' past, school administrators were able to meet their budgets through attrition or retirement. And many were able to recall a good number of those who were let go. But not this year, they say. The disappearance of federal stimulus funds and the continued weakness in the economy mean fewer dollars for public education. And that means fewer employees. Over the past two school years, New York has lost 10,000 school jobs, but 9,000 of them were through attrition or retirement, according to the New York State United Teachers union. Now, the ax is falling on actual workers. School districts, which suffered a $1.3 billion cut in state aid for the 2011-12 year, have left 5,660 teachers, librarians, counselors and nurses out of work. Another 1,940 school professionals, including bus drivers, cafeteria workers, custodians and teachers aides, are in the same boat. "This year, there is no room for contraction, which is why you'll see real people on unemployment lines," said Dick Ianuzzi, president of the 600,000-member union. That means class sizes are soaring and students have fewer support services. In California, there are now 30 to 35 kids in some classes, up from 20, said Dean Vogel, president of the California Teachers Association. Art, music and some electives are disappearing. School libraries are closed because there are no librarians to staff them. "What it means for the learning environment is that it changes it drastically," Vogel said. 0:00 / 1:47 2 million government jobs at stake Some 4,200 teachers around the Golden State are anxiously awaiting word that there's a job for them in September. Julia Cervantes-Espinoza, who teaches 2nd and 4th grade in the Los Angeles Unified School District, has been laid off each of the last three years. But this is the first time she ended school without being rehired. More than 2,000 teachers remain unemployed in her district. While she's starting to apply for positions teaching English as a Second Language in community colleges, she remains hopeful that a job will open up for her. She's relatively high on the seniority list. "I'm Number 153 so I think I'll get called back, but we'll see," Cervantes-Espinoza said.  

Downgrade turns up heat on Congress

NEW YORK (CNNMoney) -- The downgrade of the United States' AAA credit rating will apply even greater pressure on Congress to follow through on plans to tame the nation's debt. Over the next few months, Washington is set to engage in a series of battles over the fiscal course of the federal government. Print And that debate will largely be carried out through a new bipartisan "super committee." The 12-member panel -- six Democrats and six Republicans -- will have until Nov. 23 to propose how to cut between $1.2 trillion and $1.5 trillion in deficits. Congress will then take an up-or-down vote on the proposals by Dec.

23. In its downgrade announcement on Friday, credit rating agency S&P said it could "stabilize" the country's rating if the committee's work helps lead to debt-reduction measures "beyond the minimum mandated." The committee was established by the debt ceiling deal signed by President Obama this week. The law put caps in place on domestic and defense spending, resulting in cuts of $917 billion over 10 years. According to the Budget Control Act of 2011, Congress must appoint members to the committee in the next couple weeks. What's wrong with the debt ceiling deal Members will be tasked with finding ways to cut the deficit while navigating tough issues that have festered in Washington for decades: taxes, along with cuts to entitlements, defense and discretionary spending. The members of the committee will face intense pressure from lobbyists and special interest groups, as well as their fellow lawmakers -- who have to run reelection campaigns and want their views represented. A dispute has, of course, already erupted over whether the committee will tackle taxes, and which baseline should be used to measure cuts. While the committee -- once appointed -- faces a series of tough choices, they also have a powerful incentive to finish their work on time, and on budget. 0:00 / 1:48 Who is getting squeezed by the debt deal? The committee's goal is to cut at least $1.5 trillion in debt. If it fails to do that or deadlocks, the sword of Damocles will fall on most forms of spending in the federal budget. Specifically, as much as $1.2 trillion in across-the-board cuts would kick in -- evenly divided between defense and non-defense spending. The battle over 2012: The super committee won't be the only budget game in town. Lawmakers will also have to decide on agency spending levels for fiscal year 2012, which starts Oct. 1. As part of the debt ceiling deal, Congress decided to cut spending for the year, but not which programs and agencies will receive less money. The deadline for making those tough choices is just around the corner. The debt ceiling law sets discretionary spending levels for 2012 at $1.043 trillion and at $1.047 trillion for 2013 -- or an accrued total of $10 billion below current levels. Congress has made little progress on the normal appropriations process, and faces the risk of starting the year with a short-term stopgap spending plan, called a continuing resolution. That sounds an awful lot like what happened with the fiscal 2011 budget, when the process degenerated into a protracted battle that brought the government to the edge of a shutdown. Congress passed seven continuing resolutions over the course of six months. Of course, short-term spending bills are nothing new. Congress has enacted at least one every year for all but three of the past 30. But seven in one year was unprecedented, and indicative of partisan gridlock. It now appears lawmakers will face the same kind of battle over 2012 funding, at the same time the super committee will be doing its work and presenting its findings. 

European fear: The wolves are at the gate

Sarkozy, Obama, Merkel and Cameron stand together. NEW YORK (CNNMoney) -- A sharp drop in manufacturing, a towering debt-to-GDP ratio and a jaw-dropping decline in equity markets. No -- not the United States. Europe! Print Many of the underlying tremors that led to this week's steep sell-off in the U.S.

have been festering in plain sight in Europe for a year or more. Consider a few figures: European indexes have been hammered over the past month, with the main exchanges of England ( UKX ) off 12.9%, France ( CAC40 ) 17.6% and Germany ( DAX ) 16.7%. The economies of Italy and France -- two of the continent's largest -- expanded by only 0.3% and 0.2% in the second quarter. The problem? Developed countries piled on massive amounts of debt during the recession. Advanced economies worldwide increased their debt burden from $18.1 trillion in 2007 to $29.5 trillion in 2011, according to researchers at the Brookings Institution. And that's not the half of it. The number is projected to grow to $41.3 trillion by 2016. Throw 3 coins in the fountain. Italy needs them The bill collector has already come for some. Billions have been spent propping up Ireland and Greece, and investors have not been shy about sending yields through the roof when they smell blood in the water. Investors lending money to Spain are now demanding interest rates of 6%, while Greek bonds carry a 15% rate and yields on Italian notes spiked this week to 5.5%. Coupled with weak growth, the sharp increase in interest rates only adds to the countries' debt and makes it even more difficult for them to lower their debt-GDP-ratio. There is some evidence that politicians are waking up to the scale of the crisis. What's going on with Italy? German Chancellor Angela Merkel and French President Nicolas Sarkozy planned to interrupt their summer vacations -- a hiking holiday in Italy and a three-week excursion to the French Riviera -- to confer by phone about the growing economic unease. That's welcome news, because while the crisis started at the continent's periphery, it has now arrived at the gates of Italy and Spain. And that, according to Domenico Lombardi, a senior fellow at Brookings and former International Monetary Fund executive board member, should worry policymakers in the United States. "Italy has been hit," Lombardi said. "It's the third largest economy in the euro area, and there is no organization that can bail Italy out. It's just too big to swallow." 0:00 / 5:15 Market correction looks bearish If the situation in Italy were to worsen, the impact could lead to weakening demand for U.S. exports, uncertainty in global currency markets, and consequences for U.S. banks that are exposed to the European banking system. The timing couldn't be worse for the United States, which is about to engage in some fiscal belt-tightening as a result of the debt ceiling deal negotiated in Washington. With the government pumping less money into the economy, policymakers need to find a way to increase demand for U.S. exports, Lombardi said. "But this is certainly not going to come from Europe," he said. The tremendous instability in Europe is yet another drag on an already weak U.S. economy and could increase uncertainly, spark a rush to safe-haven assets or delay major investments by American businesses. "The economic recovery in the U.S. is inherently fragile," Lombardi said. "And this could have a dramatic effect on the job market outlook." On Friday, EU Economic and Monetary Affairs Commissioner Olli Rehn tried to calm the swirl of rumors as markets bucked up and down. "The market unrest witnessed in the last few days is simply not justified on the grounds of economic fundamentals," he said, having broken off his holidays to return to Brussels. "It is not justified for Italy. It is not justified for Spain." But try telling that to bond markets. 

FCC promises 100,000 jobs

WASHINGTON (CNN) -- When you call customer service in the time ahead, chances should improve that you will reach someone in the United States, with a forecast of 100,000 new jobs at call centers to be created the next two years, according to the Federal Communications Commission. In an announcement expected Thursday at a call center in Jeffersonville, Indiana, FCC Chairman Julius Genachowski will detail how small towns are replacing jobs lost from declining industry with new jobs made possible by broadband technology. Print Call centers need broadband capability to handle Internet-based chat sessions with consumers along with traditional phone calls and email correspondence. But many call centers have moved outside the United States where labor is cheaper. Where the Jobs Are Thursday's announcement, partnered with a business group Jobs4America, promises to return some of those jobs to America.

Genachowski, according to his staff, will be at a call center that services the Charbroil outdoor cooking chain and the discount retailer BJ's Warehouse ( BJ , Fortune 500). The center's activities have been based in India, the FCC said. The move is creating 175 jobs in the United States. 0:00 / 4:40 Job cuts by the thousands Jobs4America, in a statement, said the jobs will include "marketing and sales communication with consumers, as well as chat, social media monitoring, and web and phone-based self-service options," such as obtaining information about product recalls and the status of discount rebates for which consumers have applied. The contact center industry, as the group describes the field, can create thousands of U.S.-based jobs to help cut unemployment. A tally of jobs from members of Jobs4America includes: Aegis Global -- 4000 jobs Alpine Access -- 4000 jobs Accent -- 2000 jobs Novo1 -- 1000 jobs Back Office Support Systems -- 1000 jobs Sprint -- 600 jobs Etech -- 250 jobs CallAssistant -- 250 jobs AnswerNet -- 200 jobs QCSS, Inc. -- 200 jobs 

Aviation workers deal with politics-induced furloughs

FAA engineer Michael MacDonald, in the red shirt on the left, has been furloughed for a week. WASHINGTON (CNNMoney) -- Some 4,000 furloughed aviation workers are the latest casualty of political infighting in Washington. Families used to making $75,000 a year are filing for unemployment benefits and worrying how to make mortgage, car and student loan payments, furloughed workers say. Print "It really is scary," said Michael MacDonald, a 54-year-old Federal Aviation Administration engineer who lives outside of Boston. "For one week, you think OK, we can handle one week.

But now the reality is starting to set in --- this is going to take six weeks or more." The FAA has been partially shut down for more than a week, with only air traffic controllers, mechanics and those integral to keeping planes flying safely on the job. The plight of 4,000 FAA workers has been overshadowed by greater commotion over raising the debt limit and spending cuts. But lawmakers have also been at odds over approving a routine stop-gap funding measure for the agency. With the House adjourned, the funding impasse will likely grind on for FAA employees who are feeling the pinch of a lack of paycheck, not to mention perks such as like 401(k) retirement benefit contributions. MacDonald works on updating communications systems for the FAA. He's worried about paying his mortgage, car loans and college tuition for his two kids. He filed for unemployment benefits last week and has been urging his colleagues to do the same. "I've never been in this situation before," said MacDonald, a 20-year veteran of the FAA. While many employees, especially single parents, are terrified of spiraling into debt, other FAA workers say they're just furious that they've become the victims of partisan wrangling in Washington. "For this to be about something so petty, it's ridiculous. And terribly arrogant and totally uncaring," said Steve Alexander, 59, who lives near Sanford, N.C. Alexander's last day on the job was July 22, when he finished upgrading the landing system at Memphis International Airport. Best Travel Deals While Alexander saved up over a year to withstand this furlough, as a union representative, he has been talking to panicked colleagues who can't afford to be out of work for weeks on end. The partial shutdown impacts more than just federal workers. The FAA had to stop hundreds of airport construction projects nationwide, which means some 24,000 construction workers are also out of work. Another 35,000 support workers, such as food service vendors, are also impacted, said Steve Sandherr CEO of the Associated General Contractors of America. 0:00 / 2:11 Bring air traffic into 21st century "This can't go on a day longer, much less six weeks longer," Randy Babbitt, administrator of the Federal Aviation Administration, told CNN on Tuesday -- CNN's Mike M. Ahlers contributed to this report.