Two reports released Friday offered one step forward, one step back views of the economy.
The Thomson Reuters/University of Michigan’s preliminary reading of its monthly consumer sentiment index dampened the Labor Department’s better than forecast employment report that found the economy added 146,000 jobs in November. The index, a leading measure of consumer confidence in the economy and their finances, dropped from 82.7 in November to 74.5 in early December, its lowest level since August.
“Confidence plunged in early December as consumers confronted the rising likelihood that political gridlock would push the country over the fiscal cliff,” survey director Richard Curtin said in a statement.
The fiscal cliff has emerged as the dominant economic issue since the election. When asked to identify what economic news they had heard, one in four respondents mentioned hearing prospects for higher taxes, the survey found.
A Millionaire Corner survey of Affluent households in November found respondents more engaged with the issue. Fifty-six percent of affluent investors said they understand the concept of the fiscal cliff. Wealth level is a significant factor in grasping this issue. One-third of households with a net worth of less than $100,000, for example, said they understand what people are talking about when the fiscal cliff is being discussed, vs. 72 percent of Millionaires.
The fiscal cliff debate is yet another argument for financial literacy. Those who said they understand the potential consequences of the fiscal cliff either very well or fairly well are more likely to say that it will have a major impact on the U.S. economy (75 percent) and their own personal finances (48 percent). In comparison, 58 percent who have less of a grasp on the fiscal cliff think it will have major impact on the economy while 38 percent believe it will have a major impact on their personal finances.
The Thomson Reuters/University of Michigan index found similar pessimism toward the economy in general. The survey’s barometer of current economic conditions ticked downward from 90.7 in November to 89.9. Consumer expectations dropped to its lowest level in four months from 77.6 to 64.6.
Consumer sentiment is regarded as a predictor of spending, which accounts for 70 percent of the economy.