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News : US Economy Last Updated: Dec 28, 2012 - 5:50 AM


US consumer confidence dips on fiscal cliff fears; Sales of new houses rise
By Finfacts Team
Dec 28, 2012 - 5:44 AM

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US consumer confidence which had declined slightly in November, posted another dip in December as a polarised Congress struggles to agree on tax rises and spending cuts ahead of a January 01, 2013 deadline known as the fiscal cliff, when big automatic tax rises and spending cuts will be triggered if there is no agreement. Meanwhile, it was also reported on Thursday that new house sales rose in November and weekly jobless benefits claims fell last week.

There’s “a massive fiscal cliff” in America's future, Ben Bernanke, the Fed chairman, told the House Financial Services Committee of Congress last February.

“Under current law, on January 01, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases,” he said in reference to the expiring Bush tax cuts and spending reduction, set in motion by last year’s debt ceiling deal. “I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.”

If Congress and President Obama cannot agree on a deal to cut the deficit by Monday, more than $500bn in tax rises and spending cuts are set to take effect immediately.

The president has proposed that Bush-era tax cuts on incomes over $250,000 expire while many Republicans oppose any rise in taxes and demand deeper spending cuts on health and retirement programmes.

To add to a confused picture, the Republican-leaning 'Red' states are the biggest per capita beneficiaries of federal transfers while the national debt more than doubled under George W. Bush, the last Republican president.

Last year The New York Times produced a chart which illustrates how much of the federal debt accumulated under each president since 1981.

According to the chart, the Bush administration began with a $5.8tn gross federal debt, which expanded by $6.1tn to reach $11.9tn by January 2009 --  a rise of 105%, or slightly more than double. The newspaper said the rise in debt resulted from "tax cuts, the wars in Iraq and Afghanistan, (the) economic downturn in 2001 and recession starting in 2007," (Adjusted for inflation (to 2011 dollars), the increase was 88%).

See Wall Street Journal video below for more on the fiscal cliff.

The consumer confidence index now stands at 65.1 (1985=100), down from 71.5 in November. The Expectations Index declined sharply to 66.5 from 80.9. The Present Situation Index increased to 62.8 from 57.4 last month.

Lynn Franco, director of economic indicators at the Conference Board, a private New York-based research firm said on Thursday: “Consumers’ expectations retreated sharply in December resulting in a decline in the overall Index. The sudden turnaround in expectations was most likely caused by uncertainty surrounding the oncoming fiscal cliff. A similar decline in expectations was experienced in August of 2011 during the debt ceiling discussions. While consumers are quite negative about the short-term outlook, they are more upbeat than last month about current business and labor market conditions.” 

Consumers’ assessment of current conditions improved in December. Those stating business conditions are “good” rose to 17.1% from 14.6%, while those stating business conditions are “bad” decreased to 27.3% from 31.2%. Consumers’ appraisal of the labor market was mixed. Those saying jobs are “plentiful” edged down to 10.3% from 11.0%, while those saying jobs are “hard to get” declined to 35.6% from 37.4%.

Consumers’ optimism about the short-term outlook plummeted in December. The percentage of consumers expecting business conditions to improve over the next six months declined to 17.6% from 21.3%, while those expecting business conditions to worsen increased to 21.5% from 15.8%.

The Census Bureau reported that sales of new single-family houses in November 2012 were at a seasonally adjusted annual rate of 377,000 - - the highest level since April 2010. This is 4.4% above the revised October rate of 361,000 and is 15.3% above the November 2011 estimate of 327,000.

The median sales price of new houses sold in November 2012 was $246,200; the average sales price was $299,700. The seasonally adjusted estimate of new houses for sale at the end of November was 149,000. This represents a supply of 4.7 months at the current sales rate.

Meanwhile, the Department of Labor reported that the number of Americans filing first-time claims for jobless benefits fell by 12,000 last week to a seasonally adjusted 350,000. That is the third-lowest level of the year, though it was unclear whether seasonal hiring distorted the numbers.

Everything You Need to Know About the Fiscal Cliff  --  Wall Street Journal

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