Confidence in US economy likely rose slightly

Consumers' confidence in US economy is expected to have risen slightly this month

Associated Press

WASHINGTON (AP) -- Confidence in the U.S. economy likely inched up this month as Americans spent more and appeared to shrug off higher taxes that shaved their take-home pay.

Economists forecast that the Conference Board's consumer confidence index rose to 60.7 in April, according to a survey by FactSet. That would be up from 59.7 in March, when across-the-board government spending cuts began taking effect and raised uncertainty about the economy.

The Conference Board will release its report on consumer confidence for April at 10 a.m. ET Tuesday.

Consumers' confidence in the economy is watched closely because their spending accounts for about 70 percent of U.S. economic activity.

Despite several brief spikes, the confidence index remains well below the 90 reading that indicates a healthy economy — a level it hasn't reached since the Great Recession began in December 2007.

Higher income has helped offset an increase in Social Security taxes that took effect Jan. 1. That tax increase shrank take-home pay for a worker earning $50,000 a year by about $1,000. A household with two high-paid workers has up to $4,500 less.

On Friday, the government said consumer spending rose from January through March at the fastest pace in more than 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.

Spending on services drove the March increase. That was due partly to an unseasonably cold March, which required Americans to pay more to heat their homes.

Higher spending on utilities doesn't signal consumer confidence the way purchases on household goods, such as new appliances or furniture, typically do. And other reports suggest that consumers might be starting to feel the impact of the tax increase. Sales at retail stores and restaurants fell in March by the most in nine months.

Economists say the Social Security tax increase may slow consumer spending and economic growth in the April-June quarter.

Other trends, though, 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. The recovery in the housing market appears sustainable and is expected to gain momentum this year.

In addition, gasoline has become cheaper. The national average price for a gallon of gas has fallen 29 cents since Feb. 27 to $3.50. A decline in gas prices leaves consumers with more money to spend on other things.

Job gains slowed in March to only 88,000. But most economists expect at least a modest rebound in coming months.

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