Consumers will keep spending as U.S. headwinds reverse

Gasoline Prices

Assuming other costs keep rising at a similar pace as they have been and taking into account accelerating food expenses, the drop in gasoline will be enough to cause the consumer-price index to decrease “slightly” in March and April, according to a March 15 analysis by JPMorgan Chase & Co. economist Daniel Silver in New York. The CPI jumped 0.7% in February, the first gain in four months, paced by the biggest increase in gasoline prices in more than three years, Labor Department figures show.

What’s more, the current level of gas prices won’t hamper demand for other goods and services as much as in the past because households are buying more fuel-efficient vehicles, driving fewer miles and opting to carpool more often, said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut.

“If you look at the last three or four or five years, consumers have adjusted to these elevated gas prices,” Sharif said. “We’re at the point where higher gas prices are less of a concern than they used to be.”

Payroll Tax

American households are also taking an increase in the payroll tax in stride. On Jan. 1, Congress agreed to a fiscal pact that gave a permanent tax break to 99% of Americans while allowing the levy used to finance Social Security return to 6.2% from 4.2%. A worker earning $50,000 a year is taking home about $83 less a month because of the higher tax.

Executives at Darden, whose restaurant brands include Olive Garden and Red Lobster, see their industry gaining steam this month.

“The turn in March has been significant,” Clarence Otis, chief executive officer of the Orlando, Florida-based company said during a March 22 earnings call with analysts. “Consumers just were prepared, despite all the conversation, for the payroll-tax increase, and there was a pretty rapid spike up in gasoline prices. March indicates that consumers have adjusted.”

The payroll-tax increase is the one headwind that is not temporary, leading some economists to project spending will eventually slow.

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