Another Comment on Consumer Sentiment

Today’s report on consumer sentiment from the Reuters/University of Michigan survey was not what economists, or anyone else for that matter, were looking for. We were no exception.

The chief economist for the survey noted:

The overall June decline would normally be consistent with a somewhat slower spending growth rate. The sharp declines among upper income households, however, may have a greater impact on the economy since their spending accounts for a large share of the total. The June loss among higher income households was associated with a large drop in favorable ratings of economic policies and a growing recognition that federal policies to bridge the fiscal cliff will not even be discussed until the very last minute. This meant that they wanted to adopt more cautious spending plans now to protect their finances from potentially adverse developments.

The personal income and outlays report we covered earlier this morning also noted a decline in spending. We suggested that perhaps people were stashing away the money they were saving on declining gasoline prices. The survey’s chief economist suggests that there is growing awareness among US consumers that the fiscal cliff the country faces at the end of this year is unlikely to get much attention from politicians who have other things on their minds — like getting re-elected.

If the survey’s economist is right, ask yourself which political party benefits the most from delaying a decision on how to keep the US economy from falling off that fiscal cliff. Anything that postpones the day the economy arrives at the edge of the precipice is good for one political party and bad for the other. Which is which is left as an exercise for the reader.

Paul Ausick