Super Committee

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

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)  
National Journal
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Jim Tankersley and Catherine Hollander
Nov. 14, 2011, 6:43 a.m.

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.

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.

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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