WASHINGTON – Consumer demand slowed in March, increasing a mere 0.2% following a 0.7% bump in February, according to the U.S. Department of Commerce. The biggest deterrent to spending has been higher payroll taxes, which started in January, Bloomberg reports.

“Consumers won’t be able to sustain the current pace if income growth continues to disappoint,” said Millan Mulraine, TD Securities USA LLC economist. “The weak inflation backdrop is likely to cause the Fed to at least keep purchasing” securities.

According to the Department of Commerce, American incomes jumped 0.2% in March after rising 1.1% in February, while salaries and wages increased 0.2% after advancing 0.7%, respectively. Disposable income climbed 0.3% after inflation adjusting. 

The impact of a 2% increase in the payroll tax at the beginning of this year, coupled with $85 billion in automatic budget reductions starting March 1, have slowed the economy to a 1.5% pace in the first quarter. However, economists are predicting the economy will accelerate to a 2.4% average rate for June to December.

Overall, retailers are not seeing much movement in sales. Safeway said that consumers are still very much aware of price because their confidence in the economy has yet to reach pre-recession levels. Shoppers are “trying to be very careful with how they spend their dollars,” said Steve Burd, Safeway CEO and chairman.