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U.S. Consumer Confidence Less Vulnerable to Super-Committee Failure U.S. Consumer Confidence Less Vulnerable to Super-Committee Failure

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Super Committee: The Deficit Dozen (Subscribers)

Super Committee

U.S. Consumer Confidence Less Vulnerable to Super-Committee Failure

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The Joint Select Committee on Deficit Reduction, also known as the "supercommittee," holds its first organizational meeting after being created out of the bipartisan compromise on the debt ceiling crisis in August, on Capitol Hill in Washington, Thursday, Sept. 8, 2011. From left to right are: Rep. Chris Van Hollen, D-Md., Rep. Dave Camp, R-Mich., Rep. James Clyburn, D-S.C., Rep. Fred Upton, R-Mich., Rep. Xavier Becerra, D-Calif., Rep. Jeb Hensarling, R-Texas, co-chair, Sen. Patty Murray, D-Wash., co-chair, Sen. Jon Kyl, R-Ariz., Sen. Max Baucus, D-Mont., Sen. Rob Portman, R-Ohio, Sen. John Kerry, D-Mass., and Sen. Patrick Toomey, R-Pa. (AP Photo/Susan Walsh)  (AP Photo/Susan Walsh)

Washington is focused on the super committee, but the rest of the country is paying far less attention to the special panel charged with finding at least $1.2 trillion in deficit savings by Nov. 23. And that's good news, or at least not bad news, for the economy. 

The super committee's inability to forge a consensus won't trigger anything close to the confidence slide set off by the summer's debt-ceiling debate because the public just isn't paying attention, economists and a National Journal data analysis suggest.

 

Instead, Americans are watching what they perceive as even bigger problems on the horizon. 

“The super committee ... is not in the limelight as much because there’s other dark clouds hanging over the U.S. economy,” including the spreading financial crisis in Europe, said Ryan Sweet, an economist at Moody’s Analytics.

“Most consumers realize the U.S. has a serious fiscal problem,” he said. “But the super committee doesn’t have a direct impact on their day-to-day lives.”

 

That wasn’t the case with the debt-limit debate, which raged throughout the summer with escalating intensity. It dominated news coverage in the run-up to the August agreement to raise the ceiling and avert a possible government default on its debt obligations. But the heated negotiations – and just the threat of default – precipitated a downgrading of the United States's AAA credit rating by Standard & Poor’s, and it unnerved consumers nationwide.

Infographic

Consumer sentiment dove to recession-trough levels, down eight points from 63.7 in July to 55.7 in August, according to the Thomson Reuters/University of Michigan index. Since then, it has gradually climbed each month, with a preliminary November reading of 64.2 released on Friday. It’s an improvement, but still on par with levels seen during the recession of 2008-2009.

Confidence is an important barometer of economic health, particularly when it drives shoppers’ spending decisions. That isn’t always the case: The third quarter saw surprisingly strong consumer spending despite lackluster consumer sentiment. But over the longer term, consumers tend to act how they feel; a prolonged downturn in consumer sentiment would catch up with behavior.

 

“Thankfully, the relationship between confidence and spending has weakened in recent months. But the low level of confidence suggests that consumption growth is more likely to weaken next year than strengthen,” Paul Dales, senior U.S. economist at Capital Economics, said in a research note.

The fragile U.S. recovery can ill afford another sentiment drop like the one that followed the debt-limit debate – and Sweet says that would be a distinct possibility if Americans focus their attention on the super committee, only to see it deadlock. 

So far, that’s not the case. Media attention on the super committee has lagged far behind that of the debt-ceiling negotiations in the weeks leading up to the Aug. 2 deadline.

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A survey of five of the largest newspapers in the United States by daily circulation—The Wall Street Journal, USA TodayThe New York TimesThe Los Angeles Times and the San Jose Mercury News—revealed more than twice as many mentions of the “debt ceiling” in the two months prior to Aug. 2 than the “super committee” or its official name, the “Joint Select Committee on Deficit Reduction,” in the two months leading up to Monday.

National Journal conducted the search using LexisNexis, a news information service, and the Wall Street Journal website.

Economists say the effects of any super-committee failure also are likely to be mitigated by the lower stakes involved compared to the debt ceiling: Committee failure would trigger automatic budget cuts, but not a default.

On the other hand, some economists and congressional leaders say, an unexpected success from the super committee could help calm consumers - even ones who hadn’t been paying much attention to the committee - in the face of global economic uncertainty.

If the European crisis deepens, it would be “very important for us to resolve our own debt and deficit problems,” said Sen. Jeanne Shaheen, D-N.H., who chaired a subcommittee hearing on the European debt crisis earlier this month. “If there is a resolution from the super committee, or somewhere else, that would send a very powerful message to the markets.”

Nomura economists wrote in a research note on Friday that they expect little effect on markets if the super committee reaches agreement on the minimum $1.2 trillion deficit reduction measures, or if it fails and triggers cuts. But in the event the committee goes bigger and includes some fiscal stimulus to shore up the U.S. recovery in the short run, they wrote, “investor confidence may get a boost.”

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