Caught in the Middle: Rising Costs and Declining Disposable Income Put the Squeeze on American Consumers

March 5, 2013
Declining incomes due to rising taxes and cost of living will contribute to an economic slowdown later this year.

First, the good news is that consumer spending (adjusted for inflation) rose in January according to the Commerce Department.  Because consumer spending makes up about 70% of the economic activity in the US, more spending is good news and it is key to our forecast of ongoing expansion in the US in the coming quarters.  

The bad news is that income dropped in January as higher taxes began to take a bite out of take-home pay.  January’s Disposable Personal Income fell 3.98% from December to January, the steepest January decline on record (spanning 54 years).  The increase in income taxes and the return of the FICA tax to its traditional level caused the decline.  One month does not make a trend, but we will watch this carefully as we go through the next few months. 

The decline in income is occurring concurrently with the increase in gasoline and food prices.  A continual squeeze on income or on the cost of living will cause the economy to cool noticeably later this year.  Leaders in the retail environment need to be especially sensitive to these changes and market to increasingly budget conscious buyers.

Popular Sponsored Recommendations

Shifting Your Business from Products to Service-Based Business Models: Generating Predictable Revenues

Oct. 27, 2023
Executive summary on a recent IndustryWeek-hosted webinar sponsored by SAP

Legacy Phone Lines Are Draining Your Profits

Oct. 30, 2023
Copper wire phone line expenses that support emergency devices could be costing your company millions of dollars in wasteful overhead expenses. Rates have been skyrocketing while...

Smarter Savings for Manufacturers - Guide

Sept. 12, 2023
Enhance your service experiences and boost revenue while reducing costs. Learn how one platform can help your business be more agile and productive in today's market.

Gain a competitive edge with real-world lessons on private 5G networks

Nov. 16, 2023
The use of private networks in manufacturing applications is rapidly growing. In this paper, we present valuable insights and lessons learned from the field with the goal of enhancing...

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!