Payroll Tax
Congress and President Barack Obama allowed the payroll tax to return to its 2010 level of 6.2% from 4.2% at the start of the year, which means an American who earns $50,000 is taking home about $83 less a month.
The average price of a gallon of regular gasoline at the pump rose to $3.79 on Feb. 26, the highest in more than four months, according to AAA, the biggest U.S. motoring group.
Growing demand for autos is underpinning household spending, which accounts for about 70 percent of the economy. Cars and light trucks sold at a 15.2 million annual rate in January after 15.3 million in December, according to data from Ward’s Automotive Group. Including November’s 15.5 million rate, auto sales over the past three months have been the strongest in five years. February data is scheduled for release tomorrow.
Business spending has picked up after resolution of the so-called fiscal cliff at last year’s end, even amid negotiations to avert $1.2 trillion of automatic cuts over nine years that take effect tomorrow unless lawmakers and Obama agree on an alternative. The reductions are to be split almost evenly between defense and non-defense spending and are intended to shrink the federal budget deficit, which has exceeded $1 trillion in each of the past four years.
Business Investment
Capital investment was a bright spot last quarter as spending on equipment and software grew at a 11.3% rate, the fastest in more than a year. Orders for capital goods excluding defense equipment and aircraft, a proxy for future business investment, jumped 6.3% in January, the most since December 2011, Commerce Department figures showed yesterday. That follows a 0.3% drop in December.
Recovery in the housing industry may continue to help sustain the expansion. Growth in the home-improvement industry should keep pace with the overall economy, Robert Niblock, chief executive officer of Lowe’s Cos., the second-biggest home improvement retailer, said on a Feb. 25 earnings call.
‘Strengthening Growth’
“The fundamentals underlying drivers of industry growth -- mainly job gains and stable to growing housing -- should support a strengthening growth trajectory for the industry,” Niblock said.
The world’s largest economy is projected to grow at a 1.8% annual rate this quarter, according to economists surveyed by Bloomberg.
Fed Chairman Ben S. Bernanke has said that while the expansion is gaining traction, the need for a stronger economic recovery outweighs the potential costs in financial markets of continuing unprecedented monetary easing.
“Available information suggests that economic growth has picked up again this year,” Bernanke said earlier this week in testimony to the Senate Banking Committee in Washington.
Still, Bernanke cited an estimate from the nonpartisan Congressional Budget Office that the spending cuts known as sequestration will cause a 0.6 percentage-point reduction in growth this year.
“Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant,” he said.
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