This comes as the economy is already moving slowly. Gross domestic product failed to grow in the fourth quarter (declining at a 0.1 percent annual rate), the Commerce Department reported this week. Economists are forecasting a slender growth rate of 1.6 percent for the current quarter.
American workers have been hit this month by a roughly 2 percent pay cut, due to the expiration of a temporary payroll-tax break at year's end. And despite employer job creation in January, the unemployment rate ticked upward a notch, to 7.9 percent, as more people joined the labor force.
The positive news is that the private sector has shown enough strength to keep chugging along in the past few months, despite lots of uncertainty surrounding whether federal taxes would rise (an early-January deal kept the tax hikes to a minimum) and whether the federal budget will face meaningful cuts (still to be determined).
In fact, the Labor Department said Friday that job growth was actually stronger in the final two months of 2012 than had been initially reported – a fact that helped to push stock prices higher even though the January job total didn’t exceed forecasts.
But here’s where the risk of complacency comes in.
The economy may not have fully felt the impact that the payroll-tax hike will have on consumer spending – since that change in take-home pay is only a few weeks old. And the “sequester” (automatic spending cuts) could shave as much as a percentage point from the pace of GDP growth in the second and third quarter.
Investors and the general public breathed a justified sigh of relief early in January, when Congress and President Obama reached a deal that averted many of the tax hikes scheduled to hit US consumers.