WASHINGTON (MarketWatch)
Consumer sentiment took a giant step back in
December, as the looming fiscal cliff made its first measurable dent on the
public’s psyche
The preliminary University of Michigan-Thomson Reuters consumer sentiment index
fell to 74.5 from 82.7 in November
That’s far below the 82.0 expected in a MarketWatch-compiled economist poll,
eliminating four months of gains and also representing the biggest one-month
drop since March 2011
The report took some of the shine off a better-than-expected jobs report in
November, as U.S. stocks pared their gains
Sentiment is still stronger by around 6.5% from the levels of December 2011, but
that gain is down significantly from the nearly 30% year-on-year improvement
seen in November
The movement in the report came overwhelmingly on the expectations side, where
the subindex tumbled to 64.6 from 77.6 in November
Consumers’ assessment of current economic conditions were mostly stable, edging
back to 89.9 from 90.7
A series of tax hikes and spending cuts, called the fiscal cliff, is due to hit
next year unless Congress reaches an agreement to avoid it
House Speaker John
Boehner on Friday said there was no progress on talks
The Congressional Budget Office has forecast the economy to grind to a halt were
the full fiscal cliff implemented
Consumer confidence, both the University of Michigan and other measures, had
largely ignored the fiscal cliff until December, even as business sentiment
remains muted
The larger question is whether the diminished confidence translates into
weaker retail performance
Data has indicated that through October, retail sales have largely held up,
rising about 3% from year-ago levels
“With no clear resolution to the fiscal cliff yet in sight, it appears
uncertainty over future taxes are now beginning to have a significant impact on
consumer sentiment
Should a resolution be forthcoming, this decline could prove
to be a temporary blip, although the longer it rolls on for the more likely
sentiment (and possibly consumer spending) is to be further dampened,” said
Andrew Grantham of CIBC World Markets in a note to clients
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