VCU Professor Assesses Consumer Confidence with Looming Fiscal Cliff

By Cassie Williams Jones

David Urban, Ph.D., executive associate dean and professor of marketing in the VCU School of Business, said the impending fiscal cliff could prove to have disastrous economic consequences if it is not avoided.

“In late October, just prior to the presidential election, the University of Michigan Index of Consumer Sentiment was the highest it has been since September 2007,” said Urban. “But consumer sentiment could change rapidly in the near future. It is my opinion that the focus on the election during the fall overshadowed two huge economic issues.

“One is the looming ‘fiscal cliff’ - if no action is taken by the President and Congress, significant federal spending cuts and tax increases will kick in automatically in 2013. At the same time, President Obama's re-election means that the country will continue on the path toward full implementation of the Affordable Care Act (Obamacare), which Governor Romney had wanted to repeal, at least in part, if he had been elected. Both the fiscal cliff and the new health care program could dramatically affect the fragile recovery and weaken business and consumer confidence in 2013.”

He said the governmental negotiations are what will ultimately determine the economic fate of the country.

“In recent days, there has been some cautious optimism about the willingness of the President and Congress to strike a deal that will avoid the fiscal cliff,” Urban said. “However, it is what happens in the negotiations that really counts, not the pre-negotiation rhetoric. If there is no action, the country could spiral downward into another recession, which could be catastrophic given the overall weakness of the economic recovery from the last recession.”

Urban is optimistic for holiday sales, but says they are not enough to overcome the economic impact of the fiscal cliff.

“I anticipate that the early return on Christmas sales will show brisk demand for consumer goods,” Urban said. “Many consumers have yet to fully comprehend the overall impact of the looming fiscal cliff on their individual economic situations, so they will spend. Even consumers who do understand the impact may spend freely anyway, figuring that this may be their last opportunity to splurge. As we get closer to Christmas, sales will depend on the progress – or lack of progress – in the budget negotiations. If a deal is reached and the cliff dive is avoided, then one could anticipate modest economic growth into 2013.”

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