Consumer Spending in U.S

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

IncomesBy Michelle Jamrisko - Mar 1, 2013

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 inWashington. 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 worlds 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 quarters performance.

Its going to be touch and go for the consumer for the next few months, said Ryan Sweet, a senior

economist at Moodys 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 theyre not going to be able

to take it to a higher level, he said.

Stocks Drop

Stock-index futures held earlier losses after the report. The contract on the Standard & Poors 500 Index

maturing this month dropped 0.5 percent to 1,506.3 at 9:17 a.m. in New York.

Projections for spending ranged from a drop of 0.2 percent to a 0.4 percent gain.

The Bloomberg survey median called for incomes to fall 2.4 percent.

The slump in incomes in January was the biggest since January 1993 and followed a 2.6 percent jump in

December. Some companies paid dividends and employee bonuses earlier than usual before tax rates went

up this year, removing a gain usually seen in January. The Commerce Department estimated the January

level of wages was reduced by about $15 billion and December was boosted by about $30 billion, reflecting

the timing of the bonuses.

umer Spending in U.S. Climbs Even as Taxes Hurt Incomes - Bloo... http://www.bloomberg.com/news/print/2013-03-01/consumer-spe

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The saving rate dropped to 2.4 percent from 6.4 percent.

Disposable Income

Disposable income, or the money left over after taxes, dropped 4 percent after adjusting for inflation, the

biggest plunge since monthly records began in 1959. The drop also reflected the lapse of the payroll tax

holiday. Excluding the effect of the tax and other special factors such as the timing of bonuses and

dividends, disposable personal income would have increased 0.3 percent in January, the same as in

December, the report said.

Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic

product, purchases rose 0.1 percent in January for a second month, todays report showed.

Consumer purchases grew at a 2.1 percent annualized pace in the fourth quarter, up from 1.6 percent in

the previous three months, as Americans bought more durable goods including automobiles.

The economy grew at a 0.1 percent rate from October through December, less than forecast, as companies

reined in gains in inventories and national defense outlays dropped 22 percent, the biggest since 1972,

Commerce Department data showed yesterday.

Little Inflation

Todays report showed a price gauge tied to consumer spending, which are the figures tracked by Federal

Reserve policy makers, was little changed in January from the prior month. Over the past 12 months

prices rose 1.2, the smallest year-to-year gain since October 2009. The rate compares with the central

banks goal of 2 percent.

Excluding food and energy costs, prices climbed 1.3 percent in January from the same month in 2012, the

smallest year-to- year gain since April 2011.

Little inflation, combined with sluggish growth, mean Federal Reserve policy makers are likely to continue

unprecedented monetary easing measures.

Available information suggests that economic growth has picked up again this year, Bernanke said

earlier this week in testimony to the Senate Banking Committee in Washington.

Still, Bernanke cited an estimate from the nonpartisan Congressional Budget Office that the spending cuts

known as sequestration will cause a 0.6 percentage-point reduction in growth this year.

Significant Burden

Given the still-moderate underlying pace of economic growth, this additional near-term burden on the

recovery is significant, he said.


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The expiration of the payroll tax cut in January, coupled with climbing gasoline prices, are trimming

discretionary income and may damp household purchases in the first quarter.

Congress and President Barack Obama allowed the payroll tax to return to its 2010 level of 6.2 percent

from 4.2 percent at the start of the year, which means an American who earns $50,000 is taking home

about $83 less a month.

The average price of a gallon of regular gasoline at the pump rose to $3.78 on Feb. 27, little changed from

the previous days rate that was the highest in more than four months, according to AAA, the biggest U.S.

motoring group.

On a brighter note, sentiment is rebound as employment grows. The Conference Boards sentiment index

jumped in February from a revised 58.4 in January, data from the New York-based private research group

showed this week. The measures 11.2- point jump was the biggest since November 2011, offsetting much

of the almost 15-point slide over the previous three months.

Interest Rates

Interest rates hovering near record lows and growing availability of credit are buoying the auto industry,

including Fort Lauderdale, Florida-basedAutoNation Inc. (AN), the biggest dealership group in the U.S.

Attractive financing may push sales comfortably above 15 million this year, the highest since 2007.

We have the best financing available for our customers ever, Mike Jackson, chief executive officer of

AutoNation, told a J.D. Power & Associates conference this month in Orlando, Florida.

Cars and light trucks sold at a 15.2 million annual rate in January after 15.3 million in December,according to data from Wards Automotive Group. Including Novembers 15.5 million rate, auto sales over

the past three months have been the strongest in five years. February data is scheduled for release today.

To contact the reporter on this story: Michelle Jamrisko in Washington at [email protected]

To contact the editor responsible for this story: Christopher Wellisz at [email protected]

2013 BLOOMBERG L.P. ALL RIGHTS RESERVED.


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