Fears of spending cuts and tax rises weigh heavily


US consumer confidence plunged in early December as fears over tax rises and spending cuts weighed on the world’s largest economy. A confidence index compiled by the University of Michigan fell eight points to 74.5, reversing the gains of previous months, and highlighting growing uncertainty about the direction of the economy and the urgency of a political deal on cutting the US deficit.

The drop came after non-farm payroll data showed a better than expected rise in November, and a fall in the unemployment rate from 7.9 to 7.7 per cent, but only because forecast disruption from superstorm Sandy in October did not show up in the figures.

The data suggest the US economy has modest momentum, but the chances of a strong 2013 now depend on a prompt fiscal deal, and one that does not raise taxes or cut spending too quickly.

The drop in the unemployment rate came as 350,000 people left the labour market – a sign of weakness, not strength.

– (Copyright The Financial Times Limited 2012)