The Conference Board index of Consumer Confidence plummeted to 58.6 in January, almost half of its base year of 100 in 1985. Losses occurred in both current economic conditions and views about the future, virtually wiping out all of the gains we had seen in 2012.
The expiration of the payroll tax holiday, combined with concerns about the job market, made large contributions to the decline. The way consumer react to the end of the payroll tax holiday is one of a myriad of concerns that the Federal Reserve has about the economy in 2013.
It is important to note that the consumer confidence index can be extremely volatile and subject to swings in the headlines; it can often be a misleading indicator for actual consumer spending. That said, there is a disturbing trend here. Not only has confidence dropped, but political uncertainty has played a role in the decline. The combination has resulted in weaker growth since the onset of the financial crisis and should be taken seriously by Washington. Gridlock is not an option regarding the budget, long-term deficit reduction and the field of fiscal land mines Washington has deliberately laid for us.
Bottom Line: Movements in consumer confidence alone do not determine the forecast but should raise a red flag to our elected officials that they are not doing their jobs. It’s time to dismantle all the ticking, fiscal time bombs and allow all of us to move forward.