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A preliminary report from ""Thomson Reuters"":http://thomsonreuters.com/ and the ""University of Michigan"":http://www.umich.edu/ shows consumer confidence took a major hit to start December as Americans anxiously watch for signs from Washington on budget negotiations.
[IMAGE]The ""Thomson Reuters/University of Michigan Index of Consumer Sentiment"":http://thomsonreuters.com/products_services/financial/financial_products/a-z/umichigan_surveys_of_consumers/#tab3 fell to 74.5, a substantial drop from November's promising 82.7. The median forecast from economists polled by Reuters was 82.4.
""Confidence plunged in early December as consumers confronted the rising likelihood that political gridlock would push the country over the fiscal cliff,"" said Richard Curtin, chief economist for the Survey of Consumers.
[COLUMN_BREAK]If policymakers do fail to reach an agreement by the start of 2013, experts predict the resulting tax increases and spending cuts would drive the country into another recession.
Consumers expressed declining confidence about current economic conditions, driving the Current Conditions Index down from 90.7 at the end of November to 89.9 in this preliminary release.
More drastic was the drop in the Index of Consumer Expectations, which fell to 64.6 from 77.6 previously.
While the decline in confidence may be a cause of alarm for some, ""Capital Economics'"":http://www.capitaleconomics.com/ Amna Asaf said the sharp drop was overdue after several months of improving sentiment.
""The headline index of confidence is now at a level consistent with only modest consumption growth in the fourth quarter,"" the economist writes. ""It is clear that the negative impact from previous declines in equity prices and the looming fiscal cliff has started to weigh in on consumer moods. But we will have to get more certainty on the direction of the fiscal cliff before we see a marked impact on spending.""
Final results will be released December 21.
