The Dark Side of Improved Consumer Confidence

Consumer confidence has improved this year, but it could potentially be much higher.

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Today came news that Americans are feeling better about the economy, with a healthy uptick in one popular consumer confidence index. But there's also new evidence that consumers are worried about how Washington is handling the nation's debt.

[READ: Economic Confidence Still at 2009 Levels]

The Conference Board today reported that its consumer confidence index ticked up 6.2 points, to 68.1 in April (on a scale on which 1985 = 100). That's a healthy improvement from 58.4 points in January and from readings in the 40s during and after the 2011 debt ceiling fight.

At the same time, Americans' confidence in Washington has waned this year. A less-watched index—the Peter G. Peterson Foundation's Fiscal Confidence Index—remained anemic last month, at 44 on a 0 to 200 scale. The index, which measures public opinion about the national debt, is down two points from March and is also down sharply from 52 points in December, the first month the foundation started tallying the index.

Though the two findings reflect different surveys, they suggest how much Washington's fiscal stalemate — and the related consequences — are keeping average Joes and Janes from opening their wallets.

"Any time you've got a lack of confidence in any part of the economy, it's a bad thing," says Ed Walsh, a spokesperson for the Peter G. Peterson Foundation, which focuses on reducing deficits. "Confidence is the one key ingredient that really seems to be missing in the economic recovery so far."

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Fortunately, the private sector has been buoying consumer confidence. Many credited recovering home values for helping boost April's number. Some analysts also say that strong stock values could also help keep confidence afloat in coming months.

Still, there's plenty of room for Washington to weigh on confidence even more. The end to the payroll tax cut, the fiscal cliff, and sequestration cuts all have helped to dampen consumer confidence this year. In addition, looming sequestration furloughs go into effect and a potential debt ceiling fight could make for even more cautious consumers.

"[W]hile expectations appear to have bounced back, it is too soon to tell if confidence is actually on the mend," said Lynn Franco, director of economic indicators at the Conference Board, in a statement accompanying the consumer confidence figure.

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The consumer confidence index has been stuck in the current neighborhood since early 2012, despite continued improvement of the economy. But is it fair to say that consumers are really thinking about their deadlocked lawmakers when they're deciding whether to go shopping? Maybe not specifically, but it may be that the sense of stability created by a long-term fiscal plan would make consumers — not to mention business owners — breathe easier.

"Seeing agreement on an issue that is really fundamental like [debt reduction] would help people be more positively disposed toward any number of issues," says Walsh. "It would make them see that Congress and the president are capable of taking on big challenges, they're capable of reaching solutions, and I think that would have spillover effects to the broader economy."

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