Throughout the fall, there's been a pretty big disconnect between businesses and consumers on the looming tax hikes and spending cuts. Business leaders have been generally fretful, some more vocally than others, and business investment has been dragging. Consumers, on the other hand, have been more optimistic about the economic outlook, with consumer confidence and retail sales looking up.
But the latest round of economic indicators suggest that economic gloom is finally starting to set in with the general public, and the austerity crisis may have something to do with it. The Reuters/University of Michigan Consumer Sentiment Index fell 2.2 points from the preliminary reading early in November to the final reading after the election. Overall, consumer confidence is still 0.1 points higher than in October. They're still more optimistic about the current state of the economy, but consumers have become more pessimistic about what's ahead—a change that IHS Global Insight chalks up to "increased awareness by many Americans of the fiscal cliff."
"If the political rhetoric and finger pointing reaches a fever pitch similar to that of the debt ceiling crisis in the summer of 2011 then consumer confidence is likely to take a very serious hit, and this holiday season will not be very cheerful," the IHS analysis concludes.
That said, other analysts believe that the dip in consumer confidence could be linked to other factors as well, including the election itself and the volatile stock market, which has recently turned south because of new troubles in the euro zone, among other things. And it's not all bad news on the consumer front, either: Housing starts and home prices have still been on their way up, among other economic indicators to be thankful for.