U.S. Consumer Spending Up Slight 0.2%, Biggest Income Gain in 8 Years

consumer spendingBy MARTIN CRUTSINGER

WASHINGTON (AP) - U.S. consumers increased their spending in December at a slower pace, while their income grew by the largest amount in eight years. Income surged because companies rushed to pay dividends before income taxes increased on high-earners.

The Commerce Department said Thursday that consumer spending rose 0.2 percent last month. That's slightly slower than the 0.4 percent increase in November.

Income jumped 2.6 percent in December from November. Companies accelerated dividend payments to beat the January rise in income tax rates. It was the biggest gain since December 2004.

Consumer spending, which accounts for about 70 percent of economic activity, is expected to slow this year. That's because consumers are receiving less take-home pay starting this month.

Congress and the White House reached a deal on Jan. 1 to prevent income taxes from rising on all but the wealthiest Americans. But they allowed a temporary reduction in Social Security taxes to expire this year. That means a person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

The diminished pay could slow consumer spending and economic growth at a precarious moment.

The economy unexpectedly shrank in the October-December period at an annual rate of 0.1 percent, Commerce said Wednesday. The dip was a reminder of the economy's vulnerability as automatic cuts in government spending loom.

Some analysts have estimated that the roughly $120 billion in higher Social Security taxes could subtract up to 0.7 percentage point from growth this year.

And other policy decisions in Washington could slow growth further.

The agreement on the fiscal cliff averted income tax cuts on most consumers. But it only delayed across-the-board government spending cuts for two months. The cuts are set to take effect on March 1 if no agreement is reached to avert them.

The Federal Reserve announced Wednesday that it was keeping all its aggressive stimulus programs in place. These include $85 billion a month in bond purchases. The purchases are intended to keep long-term interest rates down to encourage spending, boost growth and reduce still-high unemployment.

The Fed also left its target for short-term rates at a record low and said it would stay there at least until unemployment, now at 7.8 percent, stays above 6.5 percent. Many economists think unemployment remained at 7.8 percent in January. The January jobs report will be released Friday.

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Let's talk about net earned income which is definitely down. Stop BSing! And when the truth settles in,the market will tank ,the U.S. currency will be downgraded and Ben will raise interest rates so the interest on debt will reach 1 trillion/yr+inflation,inflation,inflation. Now, that's where we are heading! It ain't good,and mo matter how you try to make a silk purse out of a sow's ear,reality will prevail. Just see who's driving the bus and you'll understand why we will go over the cliff. What's in your safe?

February 04 2013 at 8:40 PM Report abuse rate up rate down Reply

Can you say Huffy Spin. Prices are up so that contributes to the number as well?

February 01 2013 at 12:17 PM Report abuse +1 rate up rate down Reply

Daily Finance needs to replace this writer.

January 31 2013 at 4:22 PM Report abuse +1 rate up rate down Reply

To be revised downward, next month.

January 31 2013 at 3:28 PM Report abuse +2 rate up rate down Reply