Consumer Spending in U.S. Climbs Even as Taxes Hurt Incomes

Consumer spending in the U.S. rose in January even as incomes dropped by the most in 20 years, showing households were weathering the payroll-tax increase by socking away less money in the bank.

Household purchases, which account for about 70 percent of the economy, climbed 0.2 percent after a 0.1 percent gain the prior month, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg survey of 76 economists called for a 0.2 percent advance. Incomes slumped 3.6 percent, sending the saving rate down to the lowest level since November 2007.

Employment gains, the rebound in housing and growing demand for autos will probably keep supporting consumer spending in the first quarter as the world’s largest economy picks up from an end-of-year slowdown. Even so, rising gasoline prices and the need to rebuild nest eggs may make it difficult for households to match last quarter’s performance.

“It’s going to be touch and go for the consumer for the next few months,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, who correctly projected the 3.6 percent drop in income. “The consumer is going to be able to support the recovery, but they’re not going to be able to take it” to a higher level, he said.

more here: http://www.bloomberg.com/news/2013-03-01/consumer-spending-in-u-s-climbs-even-as-taxes-hurt-incomes.html

In the wake of greater social security taxes and reduced pay checks, the nation's consumer confidence has dropped to its lowest level in more than a year, according to a Conference Board statement.