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Weekly Market Insight
Do Consumers Know Something That Businesses Don’t?
 November 12, 2012

Consumer and business confidence measures are heading in opposite directions. Consumers are feeling more upbeat just in time for the holiday shopping season according to the latest release from the University of Michigan Consumer Sentiment Survey. But business confidence as measured by capital spending and other indicators suggests softness in the months ahead. Who’s right?

Businesses are seeing a drop-off in exports and are wondering about their tax burdens for next year as the nation hurtles toward the fiscal cliff. Households certainly don’t have any more clarity than businesses on next year’s tax rates, but they are encouraged by rising home prices. Perhaps because most households don’t go through a rigorous budget planning process for the year ahead – at least not one as detailed as most businesses – households may not be as focused on the potential negative impact of the fiscal cliff on their finances and the national economy, which could dip back into recession in the first half of 2013 unless lawmakers extend at least some of the tax cuts and postpone the spending cuts. In other words, it’s more likely businesses know something that consumers don’t.

With time running out, the relentless news coverage of the fiscal cliff could reverse consumer confidence unless some progress becomes evident. A lack of progress could throw cold water on the relatively upbeat forecasts for the holiday shopping season. For commercial real estate, the most immediate impact would be on shopping centers, but other property types also will feel the impact of a near-term recession if Congress and the administration do not reach an agreement.

There is a silver lining, which is that implementation of the measures in the fiscal cliff, as painful as they would be in the first half of next year, would set the nation’s balance sheet on a much more sustainable course, reducing the annual deficits in the years ahead and the ratio of publicly held debt to GDP to a manageable level.

Need more information? Contact:

Robert Bach
National Director, Market Analytics
312.698.6754