Will Resolution of the Fiscal Cliff Squelch Consumption?

The U.S. averted the Fiscal Cliff with passage of the “American Taxpayer Relief Act of 2012” on December 31. Economists think resolution of the Fiscal Cliff will lead to a fiscal drag of 1% on GDP and adversely affect the mainstay of the economy: the American Consumer.

We’re not convinced this will happen and believe tax increases overstate the related negative consumption impacts. While we expect some weakness in consumption, it is likely to be transitory and confined in the first half of 2013, before recovering above-trend in the second half. Continue reading

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