Consumer sentiment slumps in December as fiscal woes weigh

A shopper walks down an aisle in a newly opened Walmart Neighborhood Market in Chicago in this September 21, 2011 file photo.

Credit: Reuters/Jim Young/Files

NEW YORK | Fri Dec 21, 2012 10:21am EST

NEW YORK (Reuters) - Consumer sentiment slumped in December as Americans were rattled by on-going negotiations to avert the tax hikes and spending cuts set to come into effect in the new year, data showed on Friday.

The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment tumbled to 72.9 from 82.7 in November, worse than forecasts for 74.7.

It was the lowest level since July and also came in under December's preliminary figure of 74.5.

Talks to avoid the so-called fiscal cliff were thrown into disarray on Thursday evening when Republican lawmakers failed to back an effort by House of Representatives Speaker John Boehner that was designed to extract concessions from President Barack Obama.

Economists say the economy could fall back into recession next year if the changes are allowed to go into full effect.

Record numbers of consumers spontaneously mentioned their concerns that no resolution would be reached before year-end, the survey said.

"Even if something is passed in the next week, unless it includes an extension of the payroll tax holiday, as well as no increase in income taxes except for the wealthy, consumers are likely to be disappointed," survey director Richard Curtin said in a statement.

Of those surveyed, 27 percent said they were concerned about higher taxes, topping the prior high of 26 percent seen in August 2011 in the wake of the drawn-out debt ceiling debate.

U.S. stocks as measured by the SP500 index were down about 1.0 percent in morning trading as hopes faded that a fiscal deal would be reached soon.

Consumers were also less upbeat about the economic outlook, with 35 percent expecting unemployment to rise during 2013, up from 19 percent in October. Only one-third expected an uninterrupted economic expansion over the next five years.

The barometer of current economic conditions slipped to 87.0 from November's 90.7, while the gauge of consumer expectations fell to 63.8 from 77.6.

The survey's one-year inflation expectation edged up to 3.2 percent from 3.1 percent, while the survey's five-to-10-year inflation outlook rose to 2.9 percent from 2.8 percent.

(Reporting by Leah Schnurr)

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Philadelphia Fed factory activity rebounds in December

NEW YORK | Thu Dec 20, 2012 10:36am EST

NEW YORK (Reuters) - Factory activity in the U.S. mid-Atlantic region accelerated in December, bouncing back from the previous month's storm-related slump as new orders picked up.

The Philadelphia Federal Reserve Bank said its business activity index rose to 8.1 from minus 10.7 in November, easily topping economists' expectations for minus 3, according to a Reuters poll.

The new orders index climbed to 10.7 from minus 4.6.

Any reading above zero indicates expansion in the region's manufacturing sector. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.

It is seen as one of the first monthly indicators of the health of U.S. manufacturing leading up to the national report by the Institute for Supply Management.

Activity had fallen off in November due to the impact of the massive storm that hit the U.S. Northeast in late October. Except for one positive reading in October, the index had been in contraction territory since May.

"It is a pretty unambiguously positive number, although it should be said it is not a number that suggests an exceptional pace of manufacturing," said David Sloan, economist at 4Cast Ltd in New York.

The employment components also improved as the gauge of the number of employees rose to 3.6 from minus 6.8 and the average work week index gained to 4.2 from minus 6.2.

Survey respondents felt better about the outlook for the coming months with the gauge of business conditions for the next six months rising to 30.9 from 20.

U.S. stocks showed little reaction to the data as investors were also taking in reports on existing home sales and leading economic indicators.

(Reporting by Leah Schnurr, additional reporting by Chris Reese; Editing by Chizu Nomiyama)

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