The Daily Item, Sunbury, PA

Business

January 11, 2013

Consumer Comfort Drops as Americans Brace for Payroll Tax Boost

Washington, D.C. — Consumer confidence slumped last week to the lowest level in a month as Americans prepared to lose a portion of their pay to taxes.

The 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. All three components of the measure declined.

Paychecks will shrink after Congress agreed last week to let the payroll tax that funds Social Security benefits revert to 6.2 percent from 4.2 percent. With spending power diminished, Americans will have to rely on increases in salaries to counter some of the lost income just as the economy is struggling to strengthen.

"Policy tensions surrounding the budget standoff in Washington and the reset of the payroll tax were the likely catalysts for a decline in consumer comfort," said Joseph Brusuelas, senior economist at Bloomberg LP in New York. "Most households were probably blissfully unaware that their after-tax income would fall as a result of the partial solution to the fiscal cliff."

More Americans than forecast filed applications for unemployment benefits last week, a sign improvement in the labor market remains uneven, another report Thursday showed.

Jobless claims increased by 4,000 to 371,000 in the week ended Jan. 5, according to data form the Labor Department. The median forecast of 48 economists surveyed by Bloomberg called for a drop to 365,000.

The decline in comfort last week was broad-based. The personal finances gauge fell to minus 2.6 from 0.8 the prior week, the first positive reading since July. The barometer measuring Americans' views on the state of the economy decreased to minus 58.7 from minus 57.1. The buying climate index dropped to minus 41.9, falling for a third consecutive week to reach the weakest level in more than three months.

The overall comfort index was still better than the 2012 average of minus 38.1. Last week's decrease was within the margin of error of 3 percentage points.

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