Payroll tax reduction leads to more consumer spending

The federal government's decision to reduce the payroll tax on companies has led to increased consumer spending, according to MarketWatch. The 2 percent cut in the payroll tax led to a 1 percent rise in personal income at an annualized rate. Meanwhile, consumer spending inched forward 0.2 percent in January.

The 1 percent jump is the largest monthly increase in consumer income in more than 18 months. However, analysts warn that rather than spend the difference, consumers are on average saving the additional income, especially in the face of rising utility prices and non-discretionary spending.

"The personal income and spending report for January showed a slow start to the year for consumers," said chief economist Julia Coronado of BNP Paribas.

"Higher food and gasoline prices are swallowing up a larger proportion of the household budgets and making consumers feel that they should save more and spend less," said Chris G. Christopher Jr., an economist at IHS Global Insight, according to The New York Times.

Consumer income climbed 0.4 percent in December. Despite, the consecutive monthly increases, analysts continue to monitor the inflation rate which has climbed 1.2 percent over the last year. 

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