WASHINGTON (AP) -- U.S. consumers boosted their spending at the fastest pace in more than two years in the first quarter, but they may have pulled back in March as higher taxes cut into take-home pay.
Economists forecast that spending was unchanged in March from February, according to a survey by FactSet, after rising 0.7 percent in February. Incomes are expected to have increased 0.4 percent.
Consumers got off to a fast start on spending this year, but there are signs that a Jan. 1 increase in Social Security taxes is starting to bite. Sales at retail stores and restaurants fell in March by the most in nine months.
The 2 percentage point increase in Social Security taxes reduced take-home pay for nearly all Americans earning a paycheck. A person earning $50,000 a year will have about $1,000 less to spend this year. A household with two highly paid workers will have up to $4,500 less.
That's likely to slow consumer spending, which accounts for about 70 percent of economic activity.
But other trends may offset some of the impact of the taxes this year. Consumers have cut their debts and rising home values and stock prices have increased household wealth.
In addition, gas prices have fallen since peaking this year in late February. That leaves Americans with more money to spend on other things.
On Friday, the Commerce Department said the economy expanded 2.5 percent at an annual rate in the January-March quarter. That was much better than the 0.4 percent growth recorded in the fourth quarter. Growth was buoyed by the largest increase in consumer spending in more than two years.
The March figure to be released Monday was included in the first-quarter measure of GDP, or gross domestic product.
In a healthy economy, with an unemployment rate between 5 percent and 6 percent, GDP growth of 2.5 percent or 3 percent would be considered solid. But the U.S. hasn't been able to maintain that pace since the recession ended nearly four years ago. And in today's still-struggling recovery, with unemployment at 7.6 percent, the economy needs faster growth to generate enough jobs to quickly shrink unemployment.
Since the Great Recession officially ended in June 2009, growth has remained 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.