Consumer spending will drive economic growth in the U.S. this year. And bonus checks from U.S. automakers will spur that part of that spending, according to a leading economist.
United Auto Workers hourly employees will receive thousands of dollars in profit-sharing bonuses this year at the same time that adjustments under the federal tax overhaul begin to show up on pay stubs. And income-tax refund checks will be in the mail soon. Those factors will be key to extending a long cycle of growth within the U.S. economy.
The bonuses and a few other factors “will keep consumer spending a major source of overall economic growth this year,” said Stuart Hoffman, PNC Bank’s senior economic adviser.
He said the bonuses will accompany expected job growth to fuel the economy. The one-time bonuses handed out by automakers and other corporations should strengthen the U.S. economy when combined with consumer confidence, lower tax rates and expected wage gains, according to Hoffman.
General Motors Co. reported Tuesday that 50,000 UAW employees will receive up to $11,750 in profit-sharing this year. Profit-sharing dollars are based off an equation of a dollar-amount multiplied by the number of hours worked, a rate negotiated during contract talks.
Fiat Chrysler Automobiles reported in late January it would hand out checks averaging $5,500 to 40,000 hourly UAW workers, adding to the $2,000 bonuses CEO Sergio Marchionne said employees would get this year thanks to tax reform.
The day before that, Ford Motor Co. announced it would award more than 54,000 UAW workers with profit-sharing checks averaging $7,500.
Mike Kafila, 47, a Ford employee and UAW Local 900 member, said he’s always saved his profit-sharing bonuses through a savings plan. He’s saving for retirement.
“It’s a negotiated benefit the UAW bargained for,” Kafila told The Detroit News. “While not entitled to this bonus, it’s a negotiated benefit that all worked for.”
Like many other UAW members, Kafila felt the reported profit-sharing amount misrepresented how much he and other employees receive.
Dollar amounts range, based on hours worked, and UAW workers who decide to take the cash option instead of investing it in a savings plan for hourly employees see the bonus taxed more than 40 percent.
Economists and industry executives expect growth within the auto industry in 2018. Most expect new-vehicle sales to remain strong, though the industry is correcting after years of record sales.
Chuck Stevens, GM chief financial officer, said Tuesday after the company reported its 2017 earnings that the company’s 2018 outlook is “premised on continued growth in the U.S. economy.”
“When you think about global macro growth and the global economies kind of being synchronized for the first time in many years ... we are constructive that 2018 will be another strong year both globally and in the U.S.,” he said.
On average, U.S. taxpayers will see a 2.2 percent increase, according to the Tax Policy Center, a Washington D.C.-based nonpartisan group.
That amounts to an average of $1,600 more money in their pockets in 2018. Taxpayers making between $49,000 and $86,000 would received an average tax cut of about $900 in 2018, according to the center’s report analyzing the Tax Cuts and Jobs Act.
Hoffman expects middle-income households to see a modest “tax cut” show up in paychecks in February. “More importantly, job opportunities and bigger raises will help those families’ finances in 2018-2019,” he said.