WASHINGTON — This year got off to a sour start for U.S. workers: Their pay, already gasping to keep pace with inflation, was suddenly shrunk by a Social Security tax increase.
Which raised a worrisome question: Would consumers stop spending and further slow the economy? Nope. Not yet, anyway.
On Friday, the government said consumers spent 3.2 percent more on an annual basis in the January-March quarter than in the previous quarter – the biggest jump in two years. And in a report Monday, the government said consumers increased their spending in each month, by 0.2 percent in March, 0.7 percent in February and 0.3 percent in January.
The spending increases highlighted a broader improvement in Americans’ financial health that is blunting the impact of the tax increase and raising hopes for more sustainable growth.
Consumers have shed debt. Gasoline has gotten cheaper. Rising home values and record stock prices have restored household wealth to its pre-recession high. And employers are steadily adding jobs.
“No one should write off the consumer simply because of the 2 percentage-point increase in payroll taxes,” says Bernard Baumohl, chief economist at the Economic Outlook Group. “Overall household finances are in the best shape in more than five years.”