Tax cut fails to inspire consumer spending

WASHINGTON - The benefits of a Social Security tax cut that economists say should help the economy this year are off to a slow start.

Consumers increased their spending in January at the weakest pace since June, even with the extra money in their paychecks.

Some people may be using the additional money to pay down holiday credit card bills or higher gas prices, analysts said. And harsh weather may have deterred some people from shopping in January.

Personal finance experts say the real test of the tax cut's impact will come this spring, when the Easter holiday sales begin.

Still, consumers increased spending by only 0.2 percent in January, the smallest gain since June, the Commerce Department said Monday. At the same time, their incomes rose 1 percent - the biggest jump in nearly two years and a reflection of the tax cut.

The increased income is part of an additional $110 billion that economists say workers will receive this year from the cut in their Social Security taxes. Most families will see about $1,000 to $2,000 in extra income. Households with two high-income earners could receive up to $4,000 more.

In December, when President Barack Obama signed the tax cut, economists predicted Americans would spend about two-thirds of the extra money and save the rest. Economists said the extra spending would help boost growth and could lead businesses to hire more.

Still, all that was before tensions in the Middle East sent oil prices spiking. And a surge in global commodity prices is now expected to push U.S. food prices up slightly this year, too. - AP