U.S. economy more active with surge in consumer spending

Last year, it could be remembered how hard the economy was struggling. In January this year, U.S. workers got an increase of 1.1 percent on their after tax-income. With this, workers were able to save some and that led to an almost 2.6 percent increase in saving rate as of February. This is 2.2 percent more compared to the record in January. According to the Commerce Department, this figure is two times higher than the initial estimate. This is, by far, the biggest raise recorded in the past five months.

Consumer spending and the U.S. economy

The figures only show that the U.S. economy is gaining its momentum. The economy is further boosted by the increased hiring rate, larger business financing and expenditures and the well performing stock market as well. Recently, the housing market is also getting stronger.

Consumer spending in the first three months of the year is quite impressive considering the economic state last year. This is because the 70 percent of the overall economic activity comes from consumer spending. Experts explained if the January to March performance is maintained, the economy will grow by three percent per annum. When it happens, it will be a tremendous growth from the 0.4 percent rate in the last quarter of 2012, which was affected by the massive defense cuts in 40 years and the snail-like company reserves.

The U.S. economy despite the tax increase

Economy analysts say that the recent consumer spending is somewhat surprising, especially when the subsequent oil price hike and hefty Social Security taxes are taken into account. They described the figures as the quickest quarterly gain ever recorded in the past couple of years. Should it continue, the three percent annual growth rate will be the fastest gain in three years.

Inflation went up by 1.3 percent in February than the year before as it is closely tied to the consumer spending. This is relatively lower than the initial two percent target by the Federal Reserve. With this, the Fed will not be affected by the price pressure and at the same time provide a room to breathe for banks to drive the economy even more.

Although there was an increase in taxes, it has not affected the economy in any way that has been previously expected. It is mainly due to the fact that companies are continuously hiring workers as well as slowly increasing their pay. Businesses have also become more aggressive with investments on equipment and machinery.

Home-equity loans and bad credit loans account for about two percent of consumer spending. Statistics also show that types of loans are rising again. This means they are among the powerful economic activity generators. More Americans feel richer than the past two years, although they are trapped in mortgages and paying high interest rate on loans. Should this trend go on, the U.S. economy will fully recover in no time.