U.S. consumers less optimistic after tax increase

Less take-home pay, job prospects bring index down 8 points

WASHINGTON — An increase in Social Security taxes is leaving Americans with less take-home pay — and a more negative outlook for the U.S. economy.

The Conference Board said Tuesday that its index of consumer confidence plunged 8.1 points in January from December to 58.6. That's the lowest reading in 14 months and the third straight decline.

Congress and the White House reached a deal in January to keep income taxes from rising on most Americans. But the agreement did not extend a temporary cut in the Social Security taxes.

The tax increase will leave a household earning $50,000 a year with about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

The private research group said the tax hike was the key reason consumers felt less confident in January. The survey was conducted through Jan. 17, at which point most people began to realize their paychecks were lighter.

"It may take a while for confidence to rebound and consumers to recover from their initial paycheck shock," said Lynn Franco, the Conference Board's economist.

Consumers also said they felt less optimistic about their job prospects over the next six months.

Taxes are rising at a time when hiring is limited and wages are barely growing. The combination is expected to hurt consumer spending and slow economic growth.

"Perhaps more important than the shock to confidence, the hit to income is also likely to show up in a slower pace of consumer spending in the first half of this year," said Thomas Feltmate, an economist at TD Economics, in a note to clients.

The index has declined for three straight months since hitting a nearly five-year high of 73.1 in October 2012. It's still above the post-recession low of 40.9 reached in October 2011.

Meanwhile, 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 percent.


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