Consumer confidence dropped in January to its lowest mark in more than a year, a result of higher Social Security taxes that left Americans with less take-home pay, according to The Conference Board.
For a worker earning $50,000 a year, take-home pay will shrink in 2013 by about $1,000.
"It may take a while for confidence to rebound and consumers to recover from their initial paycheck shock," says Lynn Franco, Conference Board economist.
The consumer confidence index dropped 8.1 points in January from December to a reading of 58.6, the lowest since November 2011. The index has fallen for three straight months since hitting a five-year high of 73.1 in October. It's still above the post-recession low of 40.9 reached in October 2011.
Franco said the tax increase was the key reason confidence tumbled in January, making Americans less optimistic about the next six months. The survey was conducted through Jan. 17, at which point most people began to realize their paychecks were lighter.
The index fell sharply in December as congressional Republicans and President Barack Obama moved closer to the fiscal cliff without reaching a resolution on sharp spending cuts and tax increases. Congress and the White House ultimately struck a deal on Jan. 1 to prevent income taxes from rising for most Americans. But they delayed the spending cuts for only two months. And they allowed a temporary cut in Social Security taxes to expire.
Elsewhere, a recovery in the housing market is looking sustainable and is expected to strength this year. A separate report Tuesday showed home prices accelerated this fall, pushed higher by rising sales and a tighter supply of available homes.
The Standard & Poor's/Case-Shiller 20-city home price index rose 5.5 percent in November compared with the same month a year ago. That's the largest year-over-year gain in six years.