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Consumer spending increases in first quarter despite payroll tax increase

u.s. department of commerceData released by the U.S. Department of Commerce revealed that despite an increase in the payroll tax, consumer spending in the first quarter increased 3.2 percent from the fourth quarter, the largest increase in two years.

“No one should write off the consumer simply because of the two percentage-point increase in payroll taxes,” Bernard Baumohl, the chief economist at the Economic Outlook Group, said, according to MyDesert.com. “Overall household finances are in the best shape in more than five years.”

Additionally, the U.S. economy grew by 2.5 percent in the first quarter, driven partly by a recovering housing market. Residential investment increased by 12.6 percent, and nonresidential investment increased by 2.1 percent.

David Carrier, the chief economist and director of research at the National Association of Federal Credit Unions, said the sequester’s impact on government spending, combined with a decrease in defense spending, would be a drag on the economy over the next few months but added the housing market would continue to drive GDP growth this year and next year.

In the year ending in February, home prices increased by more than 10 percent, and a boom in the stock market allowed Americans to recover the $16 trillion in wealth lost as a result of the financial crisis, MyDesert.com reports.

Household debt has also fallen to 102 percent of after-tax income, down from 126 percent in 2007, nearly returning to its long-term trend. American families are also paying less interest on debts as a result of the Federal Reserve’s efforts to maintain record-low interest rates.

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