WASHINGTON – U.S. consumer confidence plunged in January to its lowest level in more than a year, reflecting higher Social Security taxes that left Americans with less take-home pay.
The Conference Board said Tuesday that its consumer confidence index dropped to 58.6 in January. That’s down from a reading of 66.7 in December and the lowest since November 2011.
Conference Board economist Lynn Franco said the tax increase was a key reason confidence tumbled and made Americans less optimistic about the next six months.
Congress and the White House reached a deal on Jan. 1 to prevent income taxes from rising on most Americans. But they allowed a temporary cut in Social Security taxes to expire. For a worker earning $50,000 a year, take-home pay will shrink this year by about $1,000.
The survey was conducted through Jan. 17, at which point most people began to realize their paychecks were lighter.
Taxes are rising at a time when wages and salaries are barely growing. The combination is expected to hurt consumer spending and slow economic growth.
Many economists predict economic growth slowed in the October-December quarter to an annual rate of around 1 per cent. That would be much weaker that the 3.1 per cent rate in the July-September quarter. Most economists don’t expect growth to pick up much in the first quarter of 2013.
The decline in confidence comes as the economy is signalling improvement elsewhere.
A recovery in housing market is looking more sustainable and is expected to strength this year.
Auto sales reached a five-year high of 14.5 million in 2012. Analysts expect sales will climb even higher this year, to 15.5 million.
Stocks are also near their all-time highs. The Standard and Poor’s 500 has more than doubled from its low in 2009 and is just 4 per cent shy of its record high set in 2007.
Still, the job market remains sluggish. Employers have added an average of about 150,000 jobs a month for the past two years. That’s enough for a gradual decline in the unemployment rate, which remains high at 7.8 per cent.