Americans cut spending amid fiscal cliff drama

Americans are scared of the fiscal cliff and are closing their wallets as a result.

A third of the public has cut back on personal spending because of worries about the $600 billion in government expenses and tax increases set to kick in at the end of the year if Congress fails to act, according to a survey released Wednesday by Bankrate.com. In a related development, the site's Financial Security Index fell to a low of 95.6 in December.

As I reported Tuesday, experts are optimistic about President Barack Obama and House Speaker John Boehner reaching a fiscal cliff deal, in part because both men are making concessions that have angered their respective political bases. Of course, things could still fall apart. Washington always seems to find ways to make things worse.

Bankrate's survey of 1,001 adults was conducted Dec. 6 through Dec. 9, so the recent developments in the talks are not reflected in the discussions. Nonetheless, they show that people are aware of the dire consequences of the fiscal cliff including the potential for the U.S. economy to wind up in another recession.  

"It's problematic. It's alarming," said Greg McBride, Bankrate.com senior financial analyst, in an interview. "We have got a slow growth muddle along economy to begin with that is dependent on consumer spending."

Indeed, consumers are not spending with the same abandon that they did before the Great Recession. FedEx (FDX) Wednesday issued disappointing corporate earnings and gave a forecast for the current quarter that was below Wall Street estimates. Most pundits are expecting gains in holiday sales to be less robust than last year even though many retailers are unveiling some creative promotions. Macy's (M), for one, is planning to remain open for 48 hours straight to attract holiday shoppers. The fiscal cliff, though, continues to loom large in the minds of many people.

"Initially, it was an abstract concept," McBride said. "There is a certain awareness there now that there wasn't a few months ago."

Not surprisingly, Bankrate's found that consumers with incomes under $30,000 per year and those over age 65 were the most likely to have cut back spending. Those under 30 were the least likely. Bankrate found Americans are less comfortable with their savings now versus a year ago by a margin of more than 3-to-1, its highest level since November 2011. Americans are also increasingly worried about their debt levels, a trend seen over the last two months, according to Bankrate.

Recent events in Washington probably will do little to soothe the frayed nerves of cash-strapped Americans.

Boehner, a Republican from Ohio, Tuesday announced he was pushing a "backup plan" in case talks with the White House fail that would extend the Bush era tax cuts to incomes up to $1 million, which is higher than $400,000 advocated by Obama and the $250,000 position the president advocated in his reelection bid. The White House has rejected this idea.

Many pundits have recently been arguing that the fiscal cliff is more like a slope and that the economy would survive if its leap lasted for only a few days. Let's hope that the politicians in Washington will ignore such talk and do the jobs that the American people elected them to do.

--Jonathan Berr does not own shares of the listed stocks.  Follow him on Twitter @jdberr. Corrects story at 1:44 p.m.  to show that people under the 30 were the least likely to cut spending, not the most.

 

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