By now most Americans have received at least one paycheck in the new year, and most of us probably reacted with a resounding “Oh come on!” (mild version…) when we saw the amount.  Granted two percent doesn’t seem like a whole lot, but with the majority of people living paycheck-to-paycheck it can have an effect.  It’s especially upsetting if the recent payroll tax increase negates a previous wage or salary increase.  This may be the case with anyone who receives a cost of living adjustment tied to the governments COLA number, which increased 1.7 percent for 2013.

Before everyone goes out and drops their DVR service (yeah right) let’s hold on for a second.  There are a number of positives that have the ever-spending U.S. consumer, and their plastic arsenal, still feeling pretty good. After stagnation for much of the year, we saw a substantial jump in personal incomes in the month of November. The data takes nearly a month to compile, but if we can see continued income growth going forward that is a huge plus for consumers.

Gas prices are near their lowest levels over the past couple of years. With technological improvements in oil drilling and domestic transportation, as well as all-time highs for new vehicle fuel economy, the combination will hopefully lead to an overall lower gas bill for everyone.

There is also this so-called “Wealth Effect.” As people’s investment portfolios grow larger they feel more secure about their finances, and thus spend more money.  One could argue that the deep scars from the financial crisis have curbed this effect somewhat. However, the continued rise in home prices and decline in mortgage debt should trump a measly little two percent tax right?

Content provided by Grant Engelbart, CLS Investment Research Analyst

0222-CLS-1/23/2013