By PAUL WISEMAN
AP Economics Writer
WASHINGTON (AP) - U.S. consumers peering over the "fiscal cliff" don't like what they see.
Fears of sharp tax increases and government
spending cuts set to take effect next week sent consumer confidence
tumbling in December to its lowest level since August.
The Conference Board said Thursday that its
consumer confidence index fell for the second straight month in December
to 65.1, down from 71.5 in November.
The survey showed consumers' outlook for the next
six months deteriorated to its lowest level since 2011 - a signal to
Lynn Franco, the board's director of economic indicators, that consumers
are worried about the tax hikes and spending cuts that take effect Jan.
1 if the White House and Congress can't reach a budget deal.
Stocks plummeted after the report was released.
Earlier this week a report showed consumers held back shopping this
holiday season, another indication of their concerns about possible tax
increases.
The December drop in confidence "is obvious
confirmation that a sudden and serious deterioration in hopes for the
future took place in December - presumably reflecting concern about
imminent 'fiscal cliff' tax increases," said Pierre Ellis, an economist
with Decision Economics.
The decline in confidence comes at a critical time when the economy is showing signs of improvement elsewhere.
A recovery in housing market is looking more
sustainable. On Thursday, the government said new-home sales increased
in November at the fastest seasonally adjusted annual pace in 2½ years.
And the job market has made slow but steady gains
in recent months. The average number of Americans applying for
unemployment benefits over the past month fell to the lowest level since
March 2008.
But the political wrangling in Washington threatens the economy's slow, steady progress.
President Barack Obama and House returned to Washington Thursday to resume talks with just days to go before the deadline.
But Senate Majority Leader Harry Reid warned that
the government appears to be headed over the "fiscal cliff" because
talks had gone nowhere. The Nevada Democrat made the comments minutes
after the consumer confidence report was released.
The combination of weaker consumer confidence and
dimming hopes of a deal on the "fiscal cliff" hit financial markets hard
Thursday.
The Dow Jones industrial average dropped 132 points in early-afternoon trading. Broader indexes also declined.
A short fall over the cliff won't push the economy
into recession. But most economists expect some tax increases to take
effect next year. That could slow economic growth.
While consumers are more worried about where the
economy is headed, they were upbeat about present conditions, according
to the latest survey. Their assessment of current economic conditions
rose this month to the highest level since August 2008.
A key reason for that is gas prices hit a 2012 low
of $3.21 a gallon last week. Normally, that would prompt consumers to
spend more on holiday shopping.
But the opposite has happened. A report from
MasterCard Advisors Spending pulse indicated sales grew in the two
months before Christmas at the weakest rate since 2008, when the country
was in a deep recession.
There were other distractions this holiday season.
In late October, Superstorm Sandy battered the Northeast and
mid-Atlantic states, which account for 24 percent of U.S. retail sales.
That coupled with the presidential election, hurt sales during the first
half of November.
Shopping picked up in the second half of November. But "fiscal cliff" worries dampened sales in December.
The National Retail Federation, the nation's
largest retail trade group, remains optimistic that sales won't be quite
as bad as earlier reports have suggested. It is sticking to its
forecast for total sales for November and December to be up 4.1 percent
to $586.1 billion this year. That's more than a percentage point lower
than the growth in each of the past two years, and the smallest increase
since 2009 when sales were up just 0.3 percent.
___
AP Retail Writer Anne D'Innocenzio contributed from New York to this report.
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