Consumers: What fiscal cliff? Ctd.

October 22, 2012

Politicians, economists and now CEOs are sounding the alarm over "taxmaggedon" and its potential impact on the near-term economy. But all indications seem to suggest that ordinary consumers aren't terribly concerned, even if they are aware of the economic uncertainty on the horizon. 


Target customer Nancy, last name not given, waits with televisions purchased at aTarget store. (Jeff Chiu/Associated Press)

A new forecast from the National Retail Federation is predicting that holiday sales will increase 4.1 percent, the group's CEO Matthew Shay describes as "the most optimistic forecast that NRF has released since the recession." On average, the group expects consumers to spend an average of $750 during the holiday season, up from $740 last year. 

That's not to say that consumers are completely unaware or unconcerned about what's at stake in the next few months. About 64 percent of consumers say that the current state of political and economic uncertainty is affecting their overall spending plans. And a little more than half — 56.6 percent — say there are aware of the fiscal cliff, which the NRF broadly defines as "tax increases and budget cuts that will take place at the end of 2012 if Congress does not act."

But for now, such concerns have largely taken a backseat to the emerging signs of strength in the economy, the group concludes. "The optimism comes from the fact we have seen positive trends with key indicators — the unemployment rate is decreasing, housing prices are a better place than they've been for a long time, consumer sentiment on the up, retail sales have actually been fairly solid," says Kathy Graniss, a NRF spokeswoman. 

To the extent that consumers become more concerned about the impact of the fiscal cliff, it will show up in consumer confidence, says Rachelle Bernstein, an NRF vice president. "Look back at what happened in 2010 — Congress went through a prolonged debate prior to extension [of the payroll tax holiday and Bush tax cuts]. Consumer confidence did not come back up until after the tax cuts were extended," Bernstein explains.

That certainly hasn't happened yet: Consumer confidence is currently the highest it's been since 2007. But other analysts believe it's probably just a matter of time ordinary Americans become more aware and concerned about the hit to their pocketbook. "We would expect consumers to be less forward-looking and react later to the risk of the fiscal Cliff," the Bank of America wrote in a recent report. "As with businesses, the biggest potential impact is on big ticket items such as auto and home sales."

So any progress on the fiscal cliff — or lack thereof — in the weeks after the election could help determine whether this sunny retail forecast holds out. 

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