The levy used to fund Social Security reverted to 6.2% of income this year, the same as in 2010, from 4.2% in each of the past two years as part of the agreement to avert the so-called fiscal cliff of tax increases and spending cuts that were to take effect in January. That reduced take-home pay by about $83 a month for anyone earning $50,000 a year.
Buoyed by rising stock and home prices and a surge in income at the end of last year, households responded to the higher taxes by putting less money away in the bank, Kasman said. The saving rate, or the share of disposable income that consumers set aside, plunged to 2.2% in January, the lowest since August 2007, from 6.5% the prior month, according to figures from the Commerce Department. It improved to 2.6% in February.
“The fundamentals do look firmer,” said JPMorgan Chase’s Kasman. “The business sector is looking like it’s healthy.” While he sees growth slowing to 1.5% this quarter, he projects it will pick up to 2% in the third quarter and to 2.5% in the last three months of the year.
Among the improving fundamentals is the country’s growing fuel independence. The U.S. produced 84% of its own energy in 2012, the most since 1991, according to data from the Energy Information Administration, the statistical arm of the Energy Department. The measure of self-sufficiency rose to 88% in December, the highest since February 1987.
U.S. production of crude oil in the fourth quarter of this year will exceed imports for the first time since 1995, as extraction from shale rock formations in North Dakota and Texas put the nation on track to surpass record output, the EIA projected last month.
Low-cost energy has been a boon for U.S. refiners, who are processing cheaper domestic oil to make fuel to meet rising demand in countries such as Brazil, China and India. Shares of Marathon Petroleum Corp. and Phillips 66 hit records in January after earnings beat estimates. In the first week of March, U.S. exports of products such as gasoline and diesel rose to a record 3.2 million barrels a day, according to EIA data.
Cheap natural gas has also attracted investment in steel making, petrochemicals and fertilizers, such as the $550 million methanol project being built by Methanex Corp. in Geismar, Louisiana. The fuel has declined 73% to $4.139 per million British thermal units since reaching a peak in 2005.
The rebound in housing presents another boost. Builders will break ground on 970,000 houses this year, up from 780,600 in 2012 and the most since 2007, the Bloomberg survey median showed.
The increase in construction is unfolding as property values firm. The median price of an existing house climbed 11.6% in the 12 months ended February, the biggest year-over- year advance since November 2005, according to figures from the National Association of Realtors.
“House-price appreciation is creating wealth, as is the run-up in stocks,” said Morgan Stanley’s Reinhart. That is also helping buoy household spending, he said. In addition, “there is a lot of business activity that is tied to housing,” he said, including sales of furniture, appliances and automobiles.