And that means certain industries -- particularly those that sell discretionary goods such as cars and jewelry -- are likely to feel the pain as consumers tighten up their purse strings.
Consumers are paying close attention to what's happening in Washington. According to a Gallup poll, 62% of Americans are following the fiscal cliff budget negotiations "very or somewhat closely." The poll was conducted via phone interviews of 1,022 adults over the weekend.
More than two-thirds of respondents say increases in federal income and Social Security payroll taxes along with major cuts in domestic spending would hurt the country. And 68% say if government leaders fail to agree and the fiscal cliff measures take effect, their personal financial situation would worsen."Without a doubt, nearly all Americans will see the effects of the fiscal cliff in their wallets. A complete elimination of recent tax cuts could lead the nation to a double-dip recession, as consumers significantly reduce their spending and create a drag on GDP," according to an IBISWorld report. The report identified three industries -- automotive, entertainment and apparel -- that will be most severely hurt by tax increases. "When disposable income declines, nonessential items, such as entertainment, travel and fashion apparel, are the first to be cut from a household's budget," the report says. Those industries "are highly sensitive to changes in per capita disposable income, meaning that a small decrease in income results in a disproportionately large drop in industry revenue." 1. Automotive IBISWorld names the car industry, including manufacturers Ford (F - Get Report), General Motors (GM - Get Report) and Toyota (TM), but also dealerships, gas stations and car-service providers such as car washes, as "one of the U.S. economy's worst-hit victims" if no deal is agreed upon. "Cars are highly discretionary and expensive purchases that require significant maintenance, so a reduction in disposable income would force consumers to delay new purchases over the next couple of years," the report says.