US consumer confidence drops in December for 2nd straight month over fears of fiscal cliff

WASHINGTON – U.S. consumer confidence tumbled in December, driven lower by fears of sharp tax increases and government spending cuts set to take effect next week.

The New York-based Conference Board said Thursday that its U.S. consumer confidence index fell this month to 65.1, down from 71.5 in November. That’s second straight decline and the lowest level since August.

The survey showed consumers are slightly more optimistic about current business conditions and hiring. But their outlook for the next six months deteriorated to its lowest level since 2011, the survey showed.

Lynn Franco, the board’s director of economic indicators, said the decline in expectations for the next six months is a signal that consumers are worried about the “fiscal cliff.” That’s the name for the automatic spending cuts and tax hikes that take effect Jan. 1 if the White House and Congress can’t reach a budget deal.

Expectations also plunged in August 2011 when a fight over the federal debt limit brought the government to the brink of insolvency, she said.

A separate consumer confidence survey released last week by the University of Michigan fell to a five-month low this month. And reports show the holiday shopping season was the weakest since 2008, when the country was in a deep recession.

Last week, the Ottawa-based Conference Board of Canada said its index of consumer confidence was down in December for a third month in a row amid concerns over job prospects and the economy in general.

People on both sides of the border have been unnerved by a political stand-off in Washington that could have serious repercussions for the U.S. economy, which is the largest in the world and a major market for Canada and other countries.

Negotiations between President Barack Obama and House Republican leaders on a package to avert the sharp tax increases and spending cuts reached an impasse last week. Obama and congressional lawmakers return to Washington Thursday to resume talks with just days to go before economy goes over the fiscal cliff.

That’s the term used to describe a combination of tax increases and spending cuts that are set to go into effect in January, unless a compromise deal is reached. Economists warn that the measures could push the U.S. back into recession and would certainly slow its recovery from the deep 2008-9 downturn.

Treasury Secretary Timothy Geithner added pressure to the talks Wednesday by alerting Congress that the government was on track to hit its borrowing limit on Dec. 31. He said Treasury would take “extraordinary measures as authorized by law” to keep the government operating for another couple of months.

Still, he added, uncertainty over the outcome of negotiations over taxes and spending made it difficult to determine how much time those measures would buy.

The Conference Board index has risen from an all-time low of 25.3 touched in February 2009. It remains well below the level of 90 that is consistent with a healthy economy. It last reached that point in December 2007, the first month of the Great Recession.

There are signs the economy is improving. The job market is slowly improving and the average number of people filing for unemployment benefits over the past month fell to the lowest level since March 2008.

Home sales are up over the past year and prices are rising, signalling the housing recovery is sustainable. Companies ordered more long-lasting manufactured goods in November. And Americans spent more in November. Consumer spending drives nearly 70 per cent of economic growth.

While a short fall over the cliff won’t push the economy into recession, most economists expect some tax increases to take effect next year. That could slow growth.