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US Consumer Spending Up Slight 0.2 Percent

For all of 2012, income rose 3.5 percent. That's the weakest increase since 2009, the final year of the Great Recession.

Still, consumers saw little increase in prices last year. A gauge of inflation preferred by the Federal Reserve was flat in December and up just 1.3 percent in 2012. That's well below the Fed's 2 percent inflation target.

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 the temporary reduction in Social Security taxes to expire this year.

The rise in Social Security taxes will leave a person earning $50,000 a year with about $1,000 less in 2013. A household with two high-paid workers will have up to $4,500 less.

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 Fed 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.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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