Tax cuts fail to spur U.S. consumer spending as expected

Tax cuts fail to spur U.S. consumer spending

Tax cuts that were supposed to encourage consumer spending had a weak impact in January, as Americans preferred to keep the extra money for now.

The growth in spending was the slowest since June last year, rising just 0.2 percent in January, according to a report from the Department of Commerce released on Monday.

Analysts think the additional money from tax cuts are being used to pay credit card debt incurred during the past holiday season. Winter storms in recent weeks may also have contributed to weak sales. But Easter shopping may be a different story as consumers are generally more open to purchases at that time of the year.

Incomes inched higher by 1 percent, the largest gain in almost two years, the report said. Families will receive $1,000 to $2,000 of extra money on average from the $100 billion Social Security tax cuts program. Low-income household were expected to spend more while high-income earners will likely save more of the additional funds.

A boost in consumer spending from the Social Security tax cuts will drive the recovery faster. But it is not happening quickly enough. To further complicate things, the crisis in the Middle East has sent gas and food prices soaring.

The weak data has tempered the enthusiasm for the economic recovery.  Analysts surmise the added income will only cover the recent added costs and will likely keep personal finances stable at best.

Still, many Americans welcome any help that they could get to put their debts and finances in order, starting with the much-anticipated Social Security tax cuts.

Posted by James Fried on Tuesday March 01 2011, 4:00 AM EST. Ref: AP. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0