Consumer Confidence Takes Another Plunge Over the Fiscal Cliff

Despite a better-than-expected November unemployment report and recent positive signs in the housing industry, consumer confidence in the United States plummeted in December to its lowest level in five months.

The final reading on the Thomson Reuters/University of Michigan’s index on consumer sentiment fell to 72.9 this month, compared to 82.7 in November. It was the lowest reading since July and worse than the preliminary figure of 74.5 released earlier in December. In comparison, consumer sentiment hit a 5-year high in November.

Economists polled in a Bloomberg survey expected a final reading of 75, according to a median of 66 estimates. Economists surveyed by Dow Jones Newswires also expected the index to come in at 75.

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The fiscal cliff, a combination of tax cuts expiring and a reduction in government spending, is taking the majority of the blame for the weak consumer sentiment. “Confidence plunged in December as consumers confronted the rising likelihood that political gridlock would push the country over the fiscal cliff. One-in-four consumers spontaneously mentioned hearing about prospects for higher taxes when asked to identify what economic news they had heard, the highest level ever recorded,” the report explained.

Recent developments do not bode well for the fiscal cliff. Due to a lack of support among his own party late Thursday, Republican House Speaker John Boehner canceled a vote on his own plan to dodge a tax increase for the majority of Americans. The bill, often referred to as “Plan B,” was the newest plot line in the fiscal cliff episode. It would have allowed the Bush-era tax cuts to expire on people with incomes above $1 million per year, while extending them for everyone else.

After pulling the bill without a vote, Boehner then dismissed the House until after Christmas, raising doubt that the two political parties will be able to reach some kind of a deal before the beginning of January.

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