Paycheck shock socks consumer confidence

The end of a payroll tax break and mixed economic signals from Congress have erased all the gains made by the Consumer Confidence Index in 2012.

By Bruce Kennedy Jan 29, 2013 3:10PM

What led to January's dismal consumer confidence numbers?

We've had recent signs the economy’s been warming up -- better housing, car sales and employment data, for instance. And there have been indications the American public was a bit more optimistic about its collective financial future; that we might actually be seeing the light at the end of this recession tunnel.

But the Consumer Confidence Index, which was down in December, fell again this month -- erasing all the gains it had made in 2012.

"Consumers are more pessimistic about the economic outlook and, in particular, their financial situation," Lynn Franco, Director of Economic Indicators at The Conference Board said in a press statement. "The increase in the payroll tax has undoubtedly dampened consumers' spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock."

Many Americans are indeed doing double-takes when they look at their paychecks. The two-year "holiday" workers had on their Social Security payroll tax -- which pushed that tax rate down to 4.2% from 6.2% in the hopes of increasing consumer spending -- is over.

The constant political bickering on Capitol Hill over the economy hasn’t helped consumer confidence levels, either. Pay check stub showing taxes withheld -- Comstock, Comstock, Getty Images

"All the negative news about the dysfunction in Washington surrounding the fiscal cliff negotiations contributed to the December plunge," notes Joshua Shapiro, chief U.S. economist at MFR, in an interview with Associated Press, "and ongoing shenanigans concerning the debt ceiling and fiscal sanity in general continued to weigh in January."

And while we may be helping to keep Social Security afloat, the increased payroll taxes mean most Americans will have to work harder to make their shrinking paychecks go further.

"For the average person, it's going to take more discipline than ever to offset this payroll tax hike," CJM Wealth Management CEO Charles Massimo recently told NBC News.

Some experts believe the increased payroll tax could change consumer shopping patterns.

Lee Boggs, a political marketing professor at West Virginia University, says the payroll tax increase comes as a major financial jolt for families still paying off their holiday bills -- as well as dealing with the usual monthly expenses.

"How many people spent and charged during the holidays based on their 2012 take home pay, not considering that their take home pay would be $40-$80 a month less in January 2013?” he said in the Tarboro, N.C., Daily Southerner.

"Now they’re bringing home less but they are still responsible for those contracts. Couple that with holiday debt and some middle class people could be facing serious financial challenges right now.”

And it’s not just the middle class facing some stark economic choices.

"The people at the lowest incomes are going to be the most stretched, the least able to take it out of savings and sustain their spending pattern," economist Joel Naroff commented in USA Today.

More on moneyNOW


Jan 29, 2013 4:02PM
Were these people living under a rock?
Jan 29, 2013 5:10PM
At our mall, the mall walkers trip the door counters as they walk the perimeter of the halls. The traffic count is then swayed as one walker may add 6 "ghost" shopper counts per lap. The Mall Hangers buy some coffee and maybe a roll or slice of pizza, but seldom carry out a big ticket item because they just don't feel they can afford it. The working folks are buying gas and food. Pretty dismal around here unless you are working the gas patch and then you are not in the area to shop very often. Another Mall about to lose some anchors as they have K Mart, Sears, Penney, and Bon Ton. None of those look well on a corporate level.
Jan 29, 2013 10:56PM
Today even before the Obama failure of reduced Social Security payments (notice did not give a holiday from IRS taxes) we had to decide between gas or food or medicine.  This guy in the White House has done nothing but cost us more out of our pockets,  no harm to him as he is a multimillionaire.  And people think he gives a damn about us, he only wants more of our money.  Hell, he promised there would be NO TAX increase to the middle and lower income levels. this is the 2nd time in one month he has lied and raised taxes. Enjoy him folks, he is a liar and worse that even Nixon, Johnson, Clinton but you voted for the socialist.  He has 4 years to steal more from you.  he is laughing his **** off.
Jan 29, 2013 9:16PM
It's not a TAX INCREASE...You were given this "temporarily" to buy gas and food and try to save a little or splurge on something you like...
Jan 29, 2013 9:27PM
You are correct TOG, But, The increased take home became the new normal eaten up by rising cost. Now the take home goes back to normal but the cost to live didn't revert, so the consumer has less to stimulate with. Austerity by any other name is still...............................austerity.

 I HOPE they get a raise or they will have to CHANGE their spending priorities going FORWARD.
Jan 29, 2013 9:01PM
Iceland President for President!

YouTube  >>>   Iceland President: Let the banks go bankrupt

Jan 29, 2013 7:50PM
ss tax increase is like 20 bucks a week, shut the f*ck up.
Jan 29, 2013 3:48PM

We`re making so much money in the market that who cares if the check is

slightly down.

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