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The agreement did not extend a temporary cut in Social Security taxes, which expired on Jan. 1. The two percentage point increase means a person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less. Most economists expect the tax increase could trim the economy's growth by about one-half a percentage point this year. Consumers spent more in December, according to a government report last week, though the increase was slower than in November. Consumer spending drives about 70 percent of the economy. There have been other signs that Americans have been willing to open their wallets. Consumer spending rose 2.2 percent in the October-December quarter, up from 1.6 percent in the previous quarter. That wasn't enough to bolster the economy, which contracted in the fourth quarter for the first time in 3 1/2 years. But the weakness resulted from one-time factors, such as a sharp drop in company stockpiles and a steep fall in defense spending. The ISM reported last week that its separate index for manufacturing surged on faster growth in new orders and hiring. The index rose to its highest level since April. Service companies have been a key source of job growth this year. They have created about 90 percent of the net jobs added since January. Still, many of the new service jobs have been low-paying retail and restaurant positions.
[Associated
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