By Steve Goldstein, MarketWatch
WASHINGTON (MarketWatch) — Consumer sentiment took a giant step back in December, as the looming fiscal cliff made its first measurable dent on the public’s psyche.
The preliminary University of Michigan-Thomson Reuters consumer sentiment index fell to 74.5 from 82.7 in November.
That’s far below the 82.0 expected in a MarketWatch-compiled economist poll, eliminating four months of gains and also representing the biggest one-month drop since March 2011.
The report took some of the shine off a better-than-expected jobs report in November, as U.S. stocks pared their gains. Read more on jobs report.
Sentiment is still stronger by around 6.5% from the levels of December 2011, but that gain is down significantly from the nearly 30% year-on-year improvement seen in November.
The movement in the report came overwhelmingly on the expectations side, where the subindex tumbled to 64.6 from 77.6 in November.
Consumers’ assessment of current economic conditions were mostly stable, edging back to 89.9 from 90.7.
A series of tax hikes and spending cuts is due to hit next year unless Congress reaches an agreement to avoid it.
The Congressional Budget Office has forecast the economy to grind to a halt were the full fiscal cliff implemented.
Consumer confidence, both the University of Michigan and other measures, has largely ignored the fiscal cliff until December, even as business sentiment remains muted.
The larger question is whether the diminished confidence translates into weaker retail performance. Data has indicated that through October, retail sales have largely held up, rising about 3% from year-ago levels.
“With no clear resolution to the fiscal cliff yet in sight, it appears uncertainty over future taxes are now beginning to have a significant impact on consumer sentiment. Should a resolution be forthcoming, this decline could prove to be a temporary blip, although the longer it rolls on for the more likely sentiment (and possibly consumer spending) is to be further dampened,” said Andrew Grantham of CIBC World Markets in a note to clients.
Steve Goldstein is MarketWatch's Washington bureau chief. Follow him on Twitter @MKTWgoldstein.
