Despite lower pay, Americans keep spending
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.
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 spent steadily more all quarter: They increased their spending 0.2 percent in March, after boosting it 0.7 percent in February and 0.3 percent in January.
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, which means more people have money to spend.
Certainly, spending weakened toward the end of the January-March quarter. Spending at retailers fell in March by 0.4 percent, the worst showing in nine months.
Americans also saved less in the first quarter, lowering the savings rate to 2.6 percent from 3.9 percent in 2012. Economists say that was likely a temporary response to the higher Social Security tax, and most expect the savings rate to rise back to last year's level. That could limit spending.
But several longer-term trends are likely to push in the other direction, economists say, and help sustain consumer spending.
Most economists are relieved that consumers have proved so resilient so far.
"It's very encouraging that consumers and thus the broader economy have been able to weather that storm as well as they have," says Mark Zandi, an economist at Moody's Analytics.
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