U.S. consumers cut back on spending last month, adding further uncertainty to an already questionable economic outlook.
After three consecutive months of improvement, the Commerce Department reported this week that retail sales fell 0.3 percent in October.
Auto sales were off 1.5 percent reflecting their largest decline in more than a year. And stripping out the volatile transportation sector, sales were unchanged.
Equity traders reacted bearishly to the report as the Dow, the S&P 500 and the NASDAQ all trended lower on the news.
Wall Street’s reaction is not surprising given that consumer spending accounts for nearly 70 percent of economic activity. But the trade also is concerned about Washington’s ability to avert looming austerity measures known collectively as the “Fiscal Cliff.”
Without Congressional action, hundreds of billions of dollars in tax increases and spending cuts automatically take effect January 1st.
President Obama and House Republicans returned from the elections this week pledging to find common ground and keep America from slipping over the Fiscal Cliff.
President Barack Obama: "I think we are all aware that we have some urgent business to do.."
As the country teeters on the edge of the fiscal cliff, a nation waits for members of Congress and the White House to craft what is being referred to as the "grand bargain" before midnight on December 31.
Rep John Boehner, Speaker of the House: "I outlined a framework that deals with reforming our tax code and reforming our spending. And I believe that the framework that I've outlined in our meeting today is consistant with the President's call for a fair and balanced approach."
Both sides of the aisle are offering their versions of how to avoid $500 billion in tax increases and $109 billion in spending cuts, but neither has given any ground. And political posturing isn’t limited to party leaders.
Sen. Mitch McConnell, R-Kentucky, Senate Minority Leader: "The country has an extraordinarily difficult set of challenges facing us over the next couple of months. The election is behind us. And we're ready to get started. The time for the president to lead is now. And that means offering a concrete plan that takes into account the fact that half the Congress opposes tax hikes."
Rep. Nancy Pelosi, D-California, House Minority Leader: "But I want you to be disabused of any notion that there's any widespread thought that it would be a good thing for our country for us to go over the cliff. We want an agreement. We want an agreement."
Despite the deadline being a little more than 6 weeks away, partisan differences remain. President Barack Obama would raise taxes on households with annual incomes over $250,000 while Republican leaders insist federal deficits must be restrained through spending cuts. Democrats are willing to put more restraint on spending as long as benefit programs like Medicare and Social Security are protected. Republican leaders say they could accept some increases in tax revenues but only by trimming deductions and closing loopholes.
Either way, if the cut-off date is reached without an agreement - and the situation remains unchecked - a recession could result.
While Medicare and Social Security are caught in the crossfire, the $500 billion Farm Bill also is getting swept up in the fray. Radical cuts to farm programs are expected to be met with calls for reductions in social and nutritional programs, which account for vast majority of agriculture department spending. The looming debt crisis, however, may help get the Farm Bill a step closer to the President’s desk.
While the hard deadline is rapidly approaching, Congressional vacations for the Thanksgiving and Christmas holidays slash available time for compromise to just 12 working days. It remains to be seen if Congress will be able to pull the nation back from the edge in time.