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.

About the Author

Alan Beaulieu Blog | President

One of the country’s most informed economists, Alan Beaulieu is a principal of the ITR Economics where he serves as President. ITR predicts future economic trends with 94.7% accuracy rate and 60 years of correct calls. In his keynotes, Alan delivers clear, comprehensive action plans and tools for capitalizing on business cycle fluctuations and outperforming your competition--whether the economy is moving up, down, or in a recession.

Since 1990, he has been consulting with companies throughout the US, Europe, and Asia on how to forecast, plan, and increase their profits based on business cycle trend analysis. Alan is also the Senior Economic Advisor to NAW, Contributing Editor for INDUSTRYWEEK, and the Chief Economist for HARDI.

Alan is co-author, along with his brother Brian, of the book MAKE YOUR MOVE, and has written numerous articles on economic analysis. He makes up to 150 appearances each year, and his keynotes and seminars have helped thousands of business owners and executives capitalize on emerging trends. 

Prior to joining ITR Economics, Alan was a principal in a steel fabrication company and also in a software development company.

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