What Effect Will Payroll Taxes Hikes Have On Consumer Spending?

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Wall Street was little changed after data showed that jobless claims increased last week, just one week after jumping to a five year low, but data also showed that consumer spending in U.S. rose in December as incomes grew by the most in eight years.Jonathan Corpina, Senior Managing Partner at Meridian Equity Partners, will weigh in about the mixed data and what effect the increase in taxes will have on consumer spending in the coming months.Data showed the number of Americans filing new claims for unemployment benefits increased to 368,000 last week, bouncing off five-year lows in the prior week and exceeding an estimated 350,000, pointing to modest improvement in the labor market.The claims data comes ahead of Friday's (February 1) payrolls report, which is expected to show employers added 160,000 jobs in January after an increase of 155,000 in December.A separate report showed incomes rose by 2.6 percent in December, the most in eight years, in a positive sign that could propel the economy forward.After the “fiscal cliff” crisis in Congress was avoided, many were expecting tax hikes just for the wealthy, but the expiration of a temporary payroll tax cut hit primarily middle- and low-income consumers. As paychecks across the country have shrunk over the last month due to higher federal tax rates, there's concern that workers are already cutting back on spending, which will drag on the economy in 2013.After Congress managed to avert the “fiscal cliff,” the Dow Jones industrial average was on track to have its best January since 1989. The Dow Jones Economic Sentiment Indicator increased to its highest reading since April 2012, and the gain in the ESI suggests growth is picking up in the first half of 2013 after the U.S. economy stalled in the fourth quarter.

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