US economy outshines Europe's despite shutdown saga

If Wall Street’s record high on Friday is a signpost, the US economy has every chance of pulling further ahead of a stuttering Europe despite new battles to come in Washington over the government’s budget and debt ceiling.

Far from sapping animal spirits, the last-gasp pact to avert an unprecedented US default has raised hopes that politicians will learn from the public’s hostile reaction to the standoff. The S&P 500 closed on Friday at an all-time peak of 1,744.50.

“There’s probably more confidence now that next time around there won’t be this kind of brinkmanship, that there won’t be another shutdown and that there certainly won’t be a default,” said Ira Kalish, chief global economist for Deloitte, the professional services organisation.

“So my expectations would be for a return of consumer confidence and of business willingness to invest and employ.”

The “next time around” is not far away. Congress has approved funding for the government until January 15 and has authorised it to keep issuing debt until February 7.

David Folkerts-Landau, group chief economist at Deutsche Bank, said the episode had inflicted deep wounds on the Republican Party – which wanted changes in Democratic President Barack Obama’s health care reforms – and on Congress.