2012/12/21: Quick Post: Consumer confidence takes a hit

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Well it had to happen sooner or later. The highly resilient American consumer has finally taken a hit after months and months of the US Fiscal Cliff shenanigans.  Even the world’s most conspicuous of conspicuous consumers are dialing it back a bit. That may not be such a surprise in its own right, yet does have implications for the incipient global recovery.

And while the current weakening is the topic of this post, we still feel the Fiscal Cliff is merely the tip of a far more troubling economic headwinds iceberg that the US economy will smack into in 2013. Rather than dwell on all that, there was an excellent CNBC chat Wednesday morning with Bankrate.com’s senior financial analyst Greg McBride. The same sort of consumer response he ascribes to the Fiscal Cliff threat is likely going to be the case for higher US taxes which are on the way even if the near term failure is averted.

Bankrate.com’s Greg McBride notes a real Fiscal Cliff dip in consumer confidence… the look of things to come?

 

 

 

 

 

 

 

 

 

 

  

It was most interesting that Mr. McBride noted, “I think it’s the broader macroview,the concern that what’s going to happen economically in 2013. It’s not the type of environment that inspires the type of confidence we need for people to spend when they’re concerned about what’s going to happen with the economy, what that bodes for unemployment, their income; that makes them more inclined to be tight fisted in this all-important holiday season.”

After all, it is no secret at this point that ‘delinking’ is a myth. While the rest of the world no longer catches cold when the US sneezes, the US remains instrumental in overall global manufacturing turnover. The incipient recovery in China and degree to which a still recessionary Europe might not fare quite so badly rely on the US consumer.

What can we say? There are so many more taxes coming down the pike into next year that even if the Fiscal Cliff plunge is averted it will be a temporary reprieve from major slippage in consumer activity and top line corporate income. And the latter is very critical, because we already had a glimpse this Fall that the lack of sales growth has caused major companies like Dupont and others to scale back operations… translate that to mean layoffs.

If the same happens to medium and small business along with higher tax bills for small businesses that pay at the personal tax rate, it is going to be a real drag on the overall US economy and equity markets. And that is one of the most pernicious aspects of this distended Fiscal Cliff negotiation: all of the Republican-cum-Conservative energy is focused on the income tax issue, which leaves all of the rest of the Obama administration tax increases in place: Obamacare related items, payroll tax holiday ending, higher dividend and capital gains taxes, etc. are all going to have an impact.

The ultimate bottom line likely turns up in January and even more so February US Retail Sales… what goes on when the average working person actually sees their diminished pay packets beginning in mid-January? How much less they have based on the various tax changes will affect their discretionary spending… then it is just a question of degree.

Thanks for your interest.