Consumer Confidence Rebounds, but Will It Last?
Life + Money

Consumer Confidence Rebounds, but Will It Last?

REUTERS/Shannon Stapleton

The contentious fiscal cliff negotiations at the end of 2012 and resulting tax hikes at the start of 2013 may have put a serious dent in consumer confidence, but Americans rebounded a bit better than expected. The question now is whether more budget battles in Washington, higher gas prices and a stock market that has come off its recent peak will make that rebound short-lived.

Before we get too pessimistic, though, let’s look at the recent resilience of U.S. consumers. Despite a payroll tax hike, higher gas prices and ongoing battles in the capital over sequestration, consumers were surprisingly upbeat in early February, according to a monthly reading from The Conference Board. The group’s Consumer Confidence Index rebounded to 69.6 this month. The increase reversed a stretch of sagging confidence dating back to October. “Consumer confidence started falling in November, and December and January were brutal,” said Chris G. Christopher, Jr., an economist with IHS Global Insight. Last month, the index hit 58.4, its lowest point in more than a year. This month’s reading is the highest reading since November.

“The shock effect caused by the fiscal cliff uncertainty and payroll tax cuts appears to have abated,” said Lynn Franco, director of economic indicators at The Conference Board, in a statement.

The rising confidence included both improved sentiment about current conditions and stronger expectations for six months out, but it’s not that Americans are exactly chipper about the economy and the job market. The index reading of 69.6 is still well below the levels that indicate a strong economy and far from the long-term average of 92, as Amna Asaf of Capital Economics noted. And Christopher of HIS notes that the cutoff date for the survey results was February 14, meaning that the full impact of higher gas prices (up another 10 cents a gallon since then) and the looming sequestration may not be fully reflected in the data.

In other words, Americans may have shaken off the last hits just in time for the next ones, particularly with $85 billion in automatic cuts to projected 2013 government spending set to take effect on Friday. Those “sequestration” cuts would lower economic growth by 0.6 percentage points this year, according to the Congressional Budget Office.

“Given the still-moderate underlying pace of economic growth,” Federal Reserve Chairman Ben Bernanke told members of the Senate Banking Committee today, “this additional near-term burden on the recovery is significant.”