This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

US Consumer Spending Up 0.2 Percent In January

By MARTIN CRUTSINGER

WASHINGTON (AP) â¿¿ U.S. consumers increased spending modestly in January but cut back on major purchases that signal confidence in the economy. The decline in spending on goods suggests higher tax rates that kicked in on Jan. 1 may have made consumers more cautious.

The Commerce Department said Friday that consumer spending rose 0.2 percent in January compared with December. The gain was driven by an increase in spending on services, partly reflecting higher heating bills. Spending on durable goods, such as cars and appliances, fell 0.8 percent. Spending on non-durable goods, such as clothing, was essentially flat.

Income plunged 3.6 percent in January, the biggest drop since January 1993. But it followed a 2.6 percent rise in December, which reflected a rush by companies to pay dividends and bonuses before income taxes increased on top earners.

After-tax income fell 4 percent in January and after having risen 2.7 percent in December. Part of the January drop reflected higher Social Security taxes.

Americans adjusted to higher taxes by saving less. The savings rate declined to 2.4 percent of after-tax income in January, down from 6.4 percent in December and the lowest in five years.

"The sting of higher taxes hit home at the start of the year. This will cool spending in the next few months before consumers adjust to higher rates," predicted Jennifer Lee, senior economist at BMO Capital Markets.

In January, Congress and the White House allowed a temporary 2 percentage point cut in Social Security taxes to expire. 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.

Lawmakers and the Obama administration also agreed to let income tax rates rise on top-earning Americans.

Paul Dales, senior U.S. economist at Capital Economics, said that spending growth in the first three months of this year could slow to just half of the 2.1 percent rate of increase seen in the October-December quarter. Consumer spending drives nearly 70 percent of economy activity.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG

Markets

Chart of I:DJI
DOW 16,351.38 +293.03 1.82%
S&P 500 1,948.86 +35.01 1.83%
NASDAQ 4,749.9790 +113.8740 2.46%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs