S&P Affirms U.S. Sovereign Credit Ratings With Stable Outlook

S&P said that U.S. strengths include its diversified and resilient economy, an extensive economic policy flexibility and its status as the world’s leading reserve currency. Still, S&P does worry about the polarized policymaking environment. Another issue is the high general government debt level, along with budget deficits.

While S&P said that the debt burden has stabilized, it does expect that the nation’s debt will rise again toward the end of this decade without any policy changes to revenues or spending.

S&P’s outlook has a Stable rating based on a less than one-in-three chance that S&P would change the rating over the next two years. This is due to economic and policy strengths continuing, barring any political cohesion.

U.S. per capita gross domestic product (GDP) for 2014 is projected to be $54,750, putting the United States as 14th in the world in terms of income level. GDP is roughly 11% higher than its inflection point in mid-2009.

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One interesting take is that the long-term growth opportunities have declined. That GDP growth now may be closer 2% rather than 2.5%, in part from aging demographics with a labor force participation rate at a 36-year low. Diminished productivity gains are also cited. Still, over the next several years S&P sees real GDP growth opportunity of 2.5% to 3.5%.

Friday’s note from S&P is far from a credit rating upgrade that would take the United States back to AAA. It also in no way signals that any serious risk of another sovereign downgrade is coming either.

There is even a path laid out that could allow for a return to a AAA rating included. S&P said the AAA rating could return if a bipartisan effort would signal a lower degree of political brinksmanship around fiscal policy, and if there is a decline in the debt burden.