Consumer confidence dropped last week to its lowest mark in more than three months, according to the Bloomberg Consumer Comfort Index.
The decline is in line with the two percentage-point increase in the payroll tax that took effect at the start of the year, meaning the resulting drop in take-home pay has Americans concerned again about their income and the overall economy.
Less discretionary income and confidence may slow consumer spending, which accounts for an estimated 70 percent of the economy, and hurt sales at retailers.
“Consumer sentiment continues to indicate displeasure with what, for most Americans, was an unexpected increase in the payroll tax at the beginning of the year amid the stagnant wage environment that has characterized the economic expansion,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York.
Consumer comfort among those earning $15,000 to $25,000 annually rose to minus 43.8, the highest in more than three years. People making $25,000 to $50,000 saw the biggest declines in sentiment last week, a sign middle-income households may be the ones feeling the tax bite most.
The comfort gauge for people making $50,000 to $75,000 slid to the lowest level since June. The measure for those earning more than $100,000 was positive for the 12th consecutive week, even after slipping about two points.
Applications for unemployment insurance payments fell by 5,000 to 330,000 in the week ended Jan. 19, the fewest since the same week in 2008, the Labor Department reported. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg survey. Claims for jobless benefits unexpectedly dropped last week to a five-year low, highlighting the challenges in adjusting the data for swings at the start of a year, another report showed.