Consumer sentiment takes sharp reversal

WASHINGTON – It’s become a familiar chapter in this sluggish economic recovery: Dysfunction in Washington drags down consumer confidence.

After rising to a six-year high this summer, the University of Michigan reported Friday that its gauge of consumer sentiment fell sharply in September to 77.5 from 82.1 in the prior month. That’s the lowest reading since April.

“While few consumers expected a federal shutdown, complaints about the economic policies of the government have risen,” said Richard Curtin, director of the Thomson Reuters/University of Michigan survey.

So far, consumers’ worries haven’t been nearly as bad as they were in December of last year, when Congress took the nation to the edge of the “fiscal cliff” of tax increases and federal spending cuts.

Nor has it come close to the mayhem in summer 2011, when consumer confidence plunged amid a budget debacle in Washington that brought a downgrade in the U.S. credit rating.

“Although the shock and dismay expressed in 2011 has thus far been absent, the data indicate that consumers are headed back down this negative path,” Curtin said in a statement. “Consumer confidence is fragile enough without this added source of economic uncertainty.”

Indeed, half the households surveyed last month by the University of Michigan said they expected no income increase in the next year. But two-thirds see higher interest rates in the coming year.

Taken together, that doesn’t bode well for consumer spending, most immediately for the holiday season.

Rising stock and housing prices have been bright spots, as has the easing of the debt troubles in Europe. But consumer sentiment – and possibly spending – will likely fall sharply if the fight over the federal budget and debt ceiling drags on.