Consumers do not make a distinction between federal income and payroll taxes, so any settlement that excludes an extension of the payroll tax cut could reduce optimism starting in early January.
San Francisco, CA (PRWEB) December 03, 2012
The recently released Thomson Reuters/University of Michigan Surveys of Consumers shows that consumer confidence remains at its 5 year high, relatively unchanged from the October level. Not surprisingly, the most mentioned economic news by survey respondents was the potential changes to federal spending programs, federal tax laws, and the inability of the current government to come to a settlement that will avert massive tax hikes and spending cuts this coming January.
The mention of the fiscal cliff by consumers in this survey is notable as it is only the fifth time in the past 50 years that consumers have spontaneous mentioned their uncertainty with respect to government policies. Notably, all of the prior occurrences were also related to the federal deficit, federal spending, and federal taxation. The most recent occurrence was last summers’ debt ceiling issues, which prompted a drop in the Consumer Sentiment Index to 55.8, the fourth lowest level ever recorded by the survey in its 66 year long history.
To be sure, based on the current survey consumer optimism remains high, however, the continuation of that optimism is relying on the government keeping taxes low.
November’s Sentiment Index was 82.7, virtually unchanged from the 82.6 reading in October. It was dramatically higher on a year over year basis versus the November 2011 reading of 63.7.
Richard Curtain, the chief economist for the Survey of Consumers, had this to say; “The gains in confidence ended in late November as consumers became more uncertain about when and how the fiscal cliff with be bridged...Some consumers are beginning to doubt whether that will happen before higher tax rates take effect in January... Consumers do not make a distinction between federal income and payroll taxes, so any settlement that excludes an extension of the payroll tax cut could reduce optimism starting in early January.”
Personal finance gains were a highlight of the survey, with more respondents reporting improved household finances than at any time since March of 2008. While there was also an increase in the number reporting their finances worsened, this is a large improvement over November 2011, when twice as many respondents reported worsening finances versus improving finances.
This survey had the most favorable employment outlook in 28 years, with more respondents saying they anticipate a favorable move in the unemployment rate than in any survey since 1984. This is a continuing trend with nearly one third of all those surveyed in both October and November expecting a lower unemployment rate over the next 12 months.
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