U.S. consumer confidence plunged in January to its lowest level in more than a year, reflecting higher Social Security taxes that left Americans with less take-home pay.
“Consumer confidence posted another sharp decline in January, erasing all of the gains made through 2012," said Conference Board economist Lynn Franco in a statement. "Consumers are more pessimistic about the economic outlook and, in particular, their financial situation."
Franco said the tax increase was a key reason confidence tumbled and made Americans less optimistic about the coming year.
The Conference Board said Tuesday that its consumer confidence index dropped to 58.6 in January. That's down from a reading of 66.7 in December and the lowest since November 2011.
“The thing that’s particularly troubling is the sizable decline in expectations,” Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, told Bloomberg. “As those expectations deteriorate, it doesn’t bode particularly well for day-to-day consumer spending.”
Congress and the White House reached a deal on Jan. 1 to prevent the nation from going over the so-called “fiscal cliff.” But they allowed a temporary cut in Social Security taxes to expire. For a worker earning $50,000 a year, take-home pay will shrink this year by about $1,000.
The survey was conducted through Jan. 17, at which point most people began to realize their paychecks were lighter.
Taxes are rising at a time when wages and salaries are barely growing. The combination is expected to hurt consumer spending and slow economic growth.
Many economists predict economic growth slowed in the October-December quarter to an annual rate of around 1 percent. That would be much weaker that the 3.1 percent rate in the July-September quarter. Most economists don't expect growth to pick up much in the first quarter of 2013.
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The Associated Press contributed to this story. Featured image courtesy Getty Images.