Stalemate in Washington Is Eroding Confidence of Consumers

(NYTimes) For months, consumers have powered spending, while businesses pulled back ahead of the looming fiscal impasse in Washington. Now, as doubts grow about whether the president and Congress can reach a compromise before a year-end deadline, evidence has emerged that consumers, too, are becoming more pessimistic about the economy.

 Consumer confidence in the first half of December took a sharper-than-expected dip, falling to its lowest level since August, according to a new survey released Thursday by the Conference Board. Wall Street also registered its frustration with the stalemate in Washington on Thursday, sending stocks sharply lower before recovering late in the day.

The gloom comes despite signs the economy has been holding up recently during the rising worries — other data released Thursday showed a healthy gain in new-home sales and a slight drop in new jobless claims. Indeed, the Conference Board’s data show consumer anxiety is centered on the outlook ahead for the economy, rather than on current conditions.

“People are realizing that we may not get a compromise and they’re getting nervous,” said Guy Berger, United States economist with RBS Securities. “It’s a precarious situation. So far consumers are worried about the future. Once they start worrying about the present, we’re in trouble.”

If Congress and President Obama cannot agree on a deal to cut the deficit by Jan. 1, more than $500 billion in tax increases and spending cuts are set to take effect.

Taxes have been the main sticking point — while the president favors eliminating Bush-era tax cuts on incomes over $250,000 and preserving current rates for lower incomes, many Republicans have been wary of supporting any tax increase. Republicans have been pushing for deeper spending cuts, something many Democrats have resisted.

Both sides remained dug in, and at midday Thursday Senator Harry Reid of Nevada, the Democratic majority leader, said he thought it was unlikely a compromise would be reached before Jan. 1.

With Wall Street tracking every turn of negotiations in Washington, shares tumbled after Mr. Reid’s remarks but recovered later in the day after reports the House would reconvene Sunday and take up the issue. The Standard & Poor’s 500-stock index fell 1.73 points, to 1,418.10, while the Dow Jones industrial average sank 18.28 points, to 13,096.31 

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