Americans to face tougher 2013 on rising prices, taxes
(Reuters) - Consumers will have to dig deeper into their pockets next year to pay for costlier healthcare, more expensive grocery bills and higher taxes, an extra drag on the country's already slow-moving economy.
The additional outlays look set to test the resilience of consumers, whose spending accounts for around two-thirds of the U.S. economy.
"We think it's going to be a difficult six to nine months," said Scott Hoyt, senior director of consumer economics for Moody's Analytics. "If anything, conditions are likely to get worse, particularly at the start of the year."
The strength of consumer spending has surprised some economists, given unemployment near 8 percent and anemic wage growth. Consumer spending has cushioned the blow to the United States from slower foreign demand for its goods.
U.S. households have shed about $880 billion in debt since the peak in the first quarter of 2008, according to Federal Reserve data. That has put many consumers on a path back to financial health.
But an expiration of payroll tax cuts in early January and a spike in food prices could wipe 0.8 percentage points off U.S. economic growth next year, according to some economists.
The economy is now expected to expand 2 percent in 2013, down from 2.1 percent in 2012, a Reuters poll showed.
Consumer groups are noting caution on the part of households when it comes to such things as taking on more debt, retirement savings and gasoline prices.
"People are very concerned about what is going to happen next year because they are already seeing price increases that are affecting their budgets," said Bruce McClary, a spokesman for Clear Point, a nationwide credit counseling organization that helps consumers experiencing problems with debt.
"They are also worried about any kind of changes that might be happening with regard to their income tax, that they are going to have less disposable income to work with," he said.
Economists at JPMorgan say expiration in January of a temporary 2 percentage-point cut in the payroll tax would reduce household spending by $125 billion and lower gross domestic product by about 0.6 percentage point next year.
Still, loss of the payroll tax cuts would be only one aspect of the "fiscal cliff," a popular name for automatic across-the-board spending cuts and tax increases that would suck about $600 billion out of the economy next year.
U.S. lawmakers are expected to find a way to soften the blow of most scheduled tax hikes, including income taxes, and spending cuts due to take effect from January 1. But if they don't, the tax increases and spending cuts could result in the most severe belt-tightening in the United States since a tax increase in 1969 to pay for the Vietnam War.comments powered by Disqus