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Consumer confidence falls to 5-month low on 'fiscal cliff' fears

December 21, 2012|By Jim Puzzanghera, Los Angeles Times
  • Consumer confidence is at its lowest level in five months amid the holiday shopping season. Above, a sale at a Pembroke Pines, Fla., mall.
Consumer confidence is at its lowest level in five months amid the holiday… (Taimy Alvarez, Sun Sentinel )

WASHINGTON — Consumer confidence plunged this month amid fears that politicians would be unable to resolve the "fiscal cliff" issues and that the impasse would trigger another recession next year.

The closely watched consumer sentiment index from Thomson Reuters and the University of Michigan tumbled in December to 72.9, the lowest level in five months, from 82.7 in November.

The latest reading, reported Friday, is even lower than a preliminary December reading of 74.5 reported two weeks ago.

It came as the Commerce Department said consumer spending rose 0.4% in November, after a drop the previous month attributed to Superstorm Sandy.

Personal income also increased last month, jumping 0.6% from October, giving consumers more money to spend. Those figures showed that, at least through November, Americans shrugged off concerns about the so-called fiscal cliff — automatic tax increases and government spending cuts set to take place Jan. 1.

But the approaching "fiscal cliff" started taking its toll on how consumers feel about the economy.

"Confidence is lost much more easily than it can be regained, and the pessimism created by not reaching a resolution before year-end will be difficult to reverse even if a settlement is reached soon after the start of 2013," said Richard Curtin, the survey's chief economist.

"Blaming one side or the other for failure will only increase pessimism as it reflects a dysfunctional system for setting economic policy," he said.

Consumers showed that they were particularly fearful of the automatic tax increases.

Those hikes on all Americans, a result mainly of President George W. Bush-era tax cuts that are set to expire, will combine with automatic federal spending cuts to push the nation into recession, most economists predict.

When asked to identify what economic news they had heard, 1 of 4 consumers in the survey spontaneously mentioned the possibility of higher taxes.

The consumer confidence level still is well above the index's low point in August 2011, when the debate over the debt ceiling sent the gauge tumbling to 54.9, the lowest reading since 1980.

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