WASHINGTON - Consumer confidence is down and firings unexpectedly climbed since 2013 began, "the first sign that higher U.S. payroll taxes will slow the economic expansion at the start of this year," writes Bloomberg.
Accordingly, the news source writes that its Bloomberg Consumer Comfort Index "fell to minus 34.4 in the seven days ended Jan. 6 from minus 31.8 the prior period, the biggest one-week drop since August. Jobless claims increased by 4,000 to 371,000 in the week ended Jan. 5, according to Labor Department figures."
The rate of workers€™ payroll taxes, which help finance Social Security, had been 4.2% for the past two years. Beginning January 1, the tax reverted to 6.2% from 4.2%, resulting in Americans having to rely on "increases in salaries to counter some of the lost income at the same time the job market shows little sign of further progress and the debate in Washington turns to federal spending cuts and the debt," writes the news source.
"Consumers are coming to the realization that their take- home pay is going to get smaller," said Richard Yamarone, a senior economist at Bloomberg LP in New York. "That will translate into weaker spending. I expect the economy will spin its wheels for many months until the jobs picture, and associated incomes, improves."
Meanwhile, business analysts told Bloomberg News that they expect sales at discount and other retailers that attract low-income shoppers, such as Dollar General and Family Dollar, to drop as the payroll tax increase continues to take shape on consumer spending. It€™s "like a splash of cold water," Credit Suisse analyst Edward Kelly told Bloomberg News. "It represents a direct reduction of spending by the lower-end consumer."