Growth in personal income remains rather weak when compared to pre-crisis levels. The important point though is that wages continue to grow; however, the expiration of the 2-year payroll tax holiday will put a big dent on income growth. Will the consumer be able to withstand this fiscal exogenous shock? That will be a big question for investors as 2013 begins in earnest.
The effects of this shock are already being felt in consumer confidence surveys, with the University of Michigan Survey of Consumer Sentiment falling to a 1+ year low. Will consumers complain but keep spending or will they become cautious and increase their savings rate?
Initial market action says that consumers will continue to spend. Dow Transports have broken to all time highs (but this bullish price action has yet to be confirmed by a new high in the Dow Industrials — Dow Theory followers would still remain cautious on the investing landscape).