US Consumer confidence plunges on higher taxes

U.S. consumer confidence plunged in January to its lowest level in more than a year, reflecting higher Social Security taxes that have left Americans with less take-home pay.

The Conference Board said Tuesday that its 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 declined for three straight months since hitting a nearly five-year high of 73.1 in October. It's still above the post-recession low of 40.9 reached in October 2011.

Conference Board economist Lynn Franco said the tax increase was the key reason confidence tumbled in January, making Americans less optimistic about the next six months.

For a worker earning $50,000 a year, take-home pay will shrink this year by about $1,000.

"It may take a while for confidence to rebound and consumers to recover from their initial paycheck shock," Franco said.

Consumers were less confident in January than December about current economic conditions, the survey showed, and their outlook for the job market grew more pessimistic.

Taxes are rising at a time when wages and salaries are barely growing. The combination is expected to hurt consumer spending and slow economic growth.

Many economists predict economic growth slowed in fourth quarter 2012 to an annual rate of about 1 percent, which would be much weaker than the third quarter's 3.1 percent rate.

The decline in confidence comes as the economy is signaling improvement elsewhere. On Tuesday, the Standard & Poor's/Case-Shiller 20-city home-price index showed values accelerated in the fall, pushed higher by rising sales and a tighter supply of available homes.

Prices rose 5.5 percent in November compared with those from the previous year. That's the largest year-over-year gain in six years.

All but one of the cities in the index posted annual gains. Phoenix was up nearly 23 percent, followed by San Francisco (12.7 percent) and Detroit (11.9 percent).