In August, federal spending issues and a ratings downgrade took its toll on economic sentiment, according to the Dow Jones Economic Sentiment Indicator. The indicator fell for the third straight month to 41.4 from 41.5 in July.

"The warning lights are flashing but the index is not quite calling recession, merely a very subdued state of sentiment about the economy," says Dow Jones Newswires "Money Talks" columnistAlen Mattich.

Coverage of the U.S. budget woes, including the debate to raise the debt ceiling and the downgrade of Treasury debt played a significant role in dragging the indicator down. As coverage of these issues eased toward the end of the month, however, the indicator did not bounce back.

The ESI is determined by in-depth sentiment analysis of national news coverage across 15 daily newspapers.It is reported on a scale of 0 to 100; higher numbers represent increasingly positive sentiment.