In this Monday, Feb. 25, 2013, photo, Kathy Redden shops at Vidler's 5 & 10 store in East Aurora, N.Y. Americans' confidence in the economy rebounded in February, reversing three straight months of declines as shoppers began adjusting to a payroll tax hike last month. (AP Photo/David Duprey)
Tuesday, February 26, 2013 5:19 pm
Americans are more confident, but will they spend?
By ANNE D'INNOCENZIOAP Retail Writer
Consumer confidence rebounded in February, reversing three straight months of declines, as Americans started getting used to the higher Social Security payroll tax, The Conference Board, a private research group said Tuesday.
But the rosier outlook follows major companies from Burger King to Wal-Mart that have cautioned in recent weeks that Americans are pulling back on their spending as they try to stomach their smaller paychecks since the tax rose by 2 percentage points last month.
Robert Zamora, who lives in Boston, says while he feels encouraged that the value of his home and his stock portfolio are rising, he's decided to spend less because of the higher payroll tax, which has reduced his monthly income by $250.
"There is no more discretionary money to go around for anything other than the basics," says Zamora, who works in web development for a financial services firm.
The way Americans feel about the economy has gone through peaks and valleys as they've tried to reconcile improving stock and housing markets with new economic challenges. In addition to the higher payroll tax, gas prices are rising and there are worries that lawmakers won't resolve a budget impasse that threatens to trigger $85 billion in spending cuts starting Friday.
The Conference Board's index is closely watched by economists because it attempts to keep a monthly pulse on how Americans are feeling about everything from their jobs to their incomes. That's important because when Americans feel good, they spend. And since consumer spending accounts for 70 percent of U.S. economic activity, the economy benefits greatly when Americans feel good about it.
The January reading shows that Americans are more confident, but still skittish. Confidence rose to 69.6, up from a revised 58.4 in January and the 60.5 analysts polled by research firm FactSet expected. That's the highest reading since November's 71.5, but well below the 90 that indicates a healthy economy.
The Conference Board's survey, which was conducted from Feb. 1 through Feb. 14 on a sample of 2,300 shoppers, shows that Americans are particularly upbeat about their job and income prospects. But that's coming off gloomier numbers over the past three months. The number of people anticipating more jobs rose to 16.7 percent from 14.4 percent, while those expecting their incomes to increase rose to 15.7 percent from 13.5 percent.
"Consumers are feeling better, but they don't feel a whole lot better," says Mark Vitner, an economist at Wells Fargo.
There's no wonder Americans are torn between positivity and angst. There's a mix of good and bad economic news.
Stocks have roughly doubled since June 2009. And the job market, while still tough, also is rebounding: In January, employers added 157,000 jobs. Still, the unemployment rate rose to 7.9 percent from 7.8 percent in December.
But whether or not Americans open their wallets and pocketbooks may rely on a few economic wildcards. One of them is gas prices, which started to climb in mid-January. As of Tuesday, they are $3.78 per gallon, 40 cents higher than they were a month ago. If gas prices keep climbing, that could squeeze Americans, particularly those already living paycheck to paycheck.
And many economists worry that the budget fights in Washington could really hurt Americans' confidence. They worry that the impasse could persist for much of this year, and drag on economic growth and Americans' willingness to spend.
Zamora, the Boston resident, certainly frets about how lawmakers are going to resolve the budget crisis.
"Nobody knows what the ripple effect will be," he says. "I don't want to be caught blowing in the wind."
AP Economics writer Chris Rugaber contributed to this report.