Consumer Spending Increases

Despite the expiration of the payroll tax cut and the increase on Social Security taxes that began on the start of the new year, The New York Times reports that consumer spending rose by about 0.2% in March. According to the federal government, the increase that took place between January and March marks the fastest increase in consumer spending for over two years. This increase is partially due to the fact that March was unusually cold, leading American’s to spend more for heating. Thus it is important to note that although an increase in consumer spending is typically good, an increase which is the result of spending more on utilities does not necessarily indicate higher consumer confidence. Spending on other things, such as clothes, cars, household goods, and furniture would be more indicate of this. However, there is some room for optimism. The Commerce Department claims that the economy grew by 2.5% during the January-March quarter. This was 6 times higher than the rate recorded for the fourth quarter. Although this grow rate would be considered optimal in an economy with low unemployment, during a struggling economy this growth rate is not high enough to diminish unemployment.

Although taxes have increased, many believe this uptick in consumer spending could continue since American’s have reduced their personal debt, their home values have likely risen, and their stocks enjoyed some success further adding to their household wealth.

Since the recession officially ended in June 2009, growth has been weaker than usual after a severe downturn. The economy expanded just 2.4 percent in 2010, 1.8 percent in 2011 and 2.2 percent in 2012.

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