What Holiday Sales Tell Us About The Fiscal Cliff

What's Next In Payments®
11:43 PM EDT December 30th, 2012

Wondering how the “fiscal cliff” will affect the stock market? Look no further than disappointing holiday sales.

That’s the conclusion reached by a recent Associated Press article that takes a look into the declining value of the Dow Jones industrial average, Standard & Poor’s 500 Index and the Nasdaq composite. To put the findings in simple terms, the market is down thanks to low holiday retail spend, and holiday retail spend was down thanks to consumer uncertainty due to the fiscal cliff.

“Consumers just aren’t confident,” Jeff Sica, president and chief investment officer of SICA Wealth Management, told the AP. “They don’t feel a sense of security that they’re going to be able to maintain their job or their income or their savings.”

As the AP points out, consumer spend accounts for around 70 percent of the U.S economy, so the effects of a poor shopping season can be larger than one may think. Over the past five days, the Dow Jones has dropped -2.81 percent to 12,938.11, the S&P 500 is down -2.86 percent to 1,402.43 and the Nasdaq has dropped -2.85 percent to 2,960.31.

Several other barometers used to measure holiday spend reveal disappointing results as well. The MasterCard Advisors SpendingPulse report found that sales for electronics, home goods, jewelry and clothing increased just 0.7 percent for the holiday season, compared to expected rises of 3 or 4 percent. The tiny increase is the lowest since 2008. The AP also cites Amazon’s loss of nearly 4 percent, or $9.99, stating that the eRetailer’s performance “helps analysts get a read on the entire retail market.”

While it’s true that those numbers could simply reflect the state of a recovering but still down economy, that the economy received no “Santa Bump” – an average 1.6 percent uptick in the five days leading up to Christmas – is an indication that the looming fiscal cliff caused many consumers to be more frugal this year.

As Washington continues to bargain over the looming debt crisis into Monday morning, whether those consumers’ concerns were justified remains to be seen.

To read the full AP article, click here.

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