American Worry About Fiscal Cliff Grows

104772810Data from MasterCard Inc. (NYSE: MA) showed that holiday spending rose much less than forecast. Car sales for December will be released in a week and may show the same. Concerns about the fiscal cliff could show up in data about home sales and travel expenditures for the holiday period as well. The cliff has taken a greater toll than much of the information from November and early December have shown.

A new Gallup poll shows a sharp drop in sentiment for the week that just ended. According to the research firm's analysts:

Americans' optimism that President Barack Obama and congressional leaders will reach a budget agreement before Jan. 1 has waned somewhat over the past week. Fifty percent now believe this and 48% are doubtful, a change from the previous three weeks, when the solid majority of Americans were generally confident leaders would reach a deal to avert the so-called fiscal cliff.

If the trend continues, the greatest worries of economist will come true. Among these is the forecast from the Congressional Budget Office that U.S. GDP will begin to drop-:

Substantial changes to tax and spending policies are scheduled to take effect in January 2013, significantly reducing the federal budget deficit. According to CBO's projections, if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of 2012 to the fourth quarter of 2013)—reflecting a decline in the first half of the year and renewed growth at a modest pace later in the year. That contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013.

By most measures, a new recession will be mild, but on top of the terrible one three years ago, the U.S. would suffer a half decade setback that would cause ripples into the economy for the balance of the decade.

If worries have jumped higher in such as short period - according to Gallup from just one week into the next - the concern almost certainly will bounce to much greater levels in the weeks ahead.

The recession will become a self-fulfilling prophesy.

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Methodology: Results for this Gallup poll are based on telephone interviews conducted Dec. 21 and 22, 2012, on the Gallup Daily tracking survey, with a random sample of 1,076 adults, aged 18 and older, living in all 50 U.S. states and the District of Columbia

Douglas A. McIntyre


Filed under: 24/7 Wall St. Wire, Economy, Research Tagged: featured, MA

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