Fiscal Cliff Clouds Consumer Confidence

by 24 Nov 2012
As Americans crowd stores and Web sites seeking seasonal bargains, consumer confidence remained at its highest level in five years, according to the Thomson Reuters/University of Michigan Survey of consumers.  Only concern over potential changes in future federal tax and spending pro-grams as well as the inability of the political parties to reach a timely settlement of the pending fiscal cliff. The Sentiment Index was 82.7 in November 2012, just above 82.6 in October, and well above last November’s 63.7.  More households reported gains in their personal finances in the November survey than any other time since March of 2008. Although a slightly larger number reported worsening finances, this represents a large gain from a year ago when worsening finances were reported twice as frequently as an improving financial situation. Anticipated gains in the economy meant that consumers held much more favorable job expectations. The survey recorded the most favorable outlook for the unemployment rate since 1984. Nearly one-in-three consumers expected a lower unemployment rate during the year ahead in both the October and November 2012 surveys. “The gains in confidence ended in late November as consumers became more uncertain about when and how the fiscal cliff with be bridged. While they had anticipated a last minute settlement, some consumers are beginning to doubt whether that will happen before higher tax rates take effect in January. While a resolution just before year-end could re-verse any future spending declines, it would nonetheless diminish holiday spending. Moreover, consumers do not make a distinction between federal income and payroll taxes, so any settlement that excludes an extension of the payroll tax cut could reduce optimism starting in early January,” said Surveys of Consumers chief economist, Richard Curtin. The Survey of Consumers is a rotating panel survey based on a nation-ally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone.

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