Volatility (^VIX) is creeping higher and stocks are lagging today as fiscal cliff dramatics weigh on confidence. President Obama is returning from Hawaii and the Senate is back in Washington to resume negotiations to avoid the brunt of the tax hikes and spending cuts set to go in effect on January 1. Senate Majority Leader Harry Reid is calling on the Republican leaders to come forward with a new fiscal plan, albeit one emulating the Democrats’ push to raise taxes on those earning above $250,000, saying it “looks like” we’ll go over the cliff, while speaking out this morning on the Senate floor.
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Even Starbucks (SBUX) is getting into the mix. The company’s 120 DC-area coffee shops are encouraging employees to write “Come Together” on coffee cups, in reference to the need for politicians to compromise, according to AP. The small effort is strongly backed by CEO Howard Schultz who says if talks don’t progress, he’ll make the initiative bigger to call attention to the harm being done to “consumer psyche and behavior.”
Meanwhile, the Conference Board’s consumer confidence index dropped to 65.1 in December from 71.5 in November –which was revised down from its initial 73.7 reading. Further within the data, a barometer of short-term expectations fell to 66.5 this month from 80.9 in the prior month; the lowest level since November 2011.
Economists have been quick to point to the fiscal cliff as the main drag on short-term consumer confidence, but the longer-term outlook still appears to be relatively strong.
In a note to clients, Andrew Wilkinson, chief economic strategist at Miller Tabak, highlights the difference.
“The closer we get to the so-called fiscal cliff, the more informed consumers have become over its impact on incomes and potential disruption to the economy. Despite a setback for the headline confidence index, consumers retained a relatively optimistic stance regarding employment prospects as the so-called labor market differential continued to gain to minus 25.3 for its fourth back-to-back gain. So while consumers are feeling less comfortable with predicted tougher conditions next year, they are not as yet linking this to a downturn for the employment situation.”
While expressing similar analysis regarding the negative impact from the fiscal cliff, but still positive mood about improving labor market conditions, IHS economist Chris G. Christopher concludes:
“This is a bad report, since December is an important month for retailers. With more Americans worried about what is in store for them around the corner, they are prone to be more cautious on the spending front. To sum up –the fiscal cliff is the Grinch that stole consumer cheer this year. Bad timing, indeed.”
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