The nation's consumers have been dealt a moderate blow in recent weeks, most notably, we sense, by a failure of our government leaders in Washington to fashion a budget deal that would avoid a series of mandatory tax increases and spending reductions set to kick in by early in the new year.
Specifically, in the past 45 minutes, or so, the U.S. Conference Board, a private New York-based research organization observed that its closely watched series registered a reading of 65.1 this month. That was down from both from November's downwardly revised figure of 71.5 (initially estimated at 73.7) and expectations of 70.0.
The latest index, moreover, was the lowest since August, when confidence had registered just 61.3. In October, by comparison, confidence had been up at 73.1.
The entire reasoning for the most recent slippage was a sharp drop in consumer expectations. This is a forward looking component of the aggregate series, and it registered a result of just 66.5. That was well shy of the downwardly revised November total of 80.9, and even further below the originally estimated November level of 85.1. The material reversal in this category reflects the troubled outlook for the economy in the increasingly likely event we go over the fiscal cliff on January 2nd. Many economists now believe that the nation could be thrown into a recession should a deal on the budget not be forthcoming in a reasonable time after the passage of the early January deadline. We think, at the minimum, such a broaching of the deadline would bring on a slowdown in growth.
Meanwhile, the present situations component of the series actually rose this month, with the series coming in at 62.8. That topped the November score of 57.4.
According to Lynn Franco, the director of economic indicators at the Conference Board, “the sudden turnaround in expectations was most likely caused by uncertainty surrounding the upcoming fiscal cliff.” It should be noted; she went on, that “a similar decline in expectations was experienced in August of 2011 during the debt ceiling discussions.”
Overall, this was a disappointing result, and underscores the serious nature of the potential fallout from the talks that are now ongoing in Washington. We still think some sort of accord will be fashioned either in the coming days or shortly into the new year. At this time, though, we believe such an accord will be partial in scope, with the so-called Grand Bargain not being fashioned until later on in 2013.
At the time of this writing, the author did not have positions in any of the stocks mentioned.