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Washington - Chain Store Sales Point To A Hit From Tax Hike

Published on: January 23, 2013 04:26 PM
By: Reuters
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Washington -  A slowdown in sales growth at many big U.S. retailers suggests a clutch of tax hikes enacted this month is already leading consumers to hold back on spending, putting a brake on economic growth.

Sales growth has cooled for three straight weeks when measured from a year earlier in the Johnson Redbook Retail Sales Index, data showed on Wednesday.

Similarly, the ICSC U.S. retail chain store sales index, which is the other major weekly barometer of retail spending, has showed weakening of growth in the last two weeks.

“We can very tentatively say that these numbers look consistent with our view that the increase in taxes at the start of 2013 led to a slowdown in consumer spending,” said Daniel Silver, an economist at JPMorgan in New York.

Washington this month raised taxes on most Americans.

The brunt of the tax hike came from the expiration of a temporary payroll tax cut. That cut—a 2 percentage point reduction in a levy that funds Social Security—was put in place two years ago to help the economy, which was still smarting from the 2007-09 recession.

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About 160 million workers pay this tax, and the increase will cost the average worker about $700 a year, according to the Tax Policy Center, a Washington think tank.

Congress and President Barack Obama also allowed income tax rates to rise this month for households making more than $450,000 a year, a partial repeal of tax cuts put in place under President George W. Bush. The wealthy will also pay a new tax to help fund a health insurance reform passed in 2010.

These will have a smaller impact on the wider economy because they affect fewer people. But taken together, this year’s tax hikes could subtract a full percentage point from growth, JPMorgan estimates.

Some economic data appears to be baring out economists’ predictions.

Compared to the same week one year earlier, the Redbook index rose 1.8 percent in the week ending January 19, down from 1.9 percent in the January 12 week and 2.1 percent in the January 5 week. Sales were up 2.9 percent in the December 29 week from a year earlier.

Weekly data on retail sales can be quite volatile, and analysts said more compelling evidence of a slowdown in spending—or even an outright decline—will likely come from the government’s more comprehensive report on retail sales for the full month of January due on February 13.

“There is some kind of slowdown in spending perhaps going on ... but it’s hard to know how significant that is based on a fairly ropy batch of data,” said Paul Dales, an economist at Capital Economics in London.

The ICSC U.S. retail chain store sales index, which banking giant Goldman Sachs helps to produce, rose 3.2 percent in the week ending January 19 from a year ago, down from 3.3 percent in the week of January 12 and 4 percent in the week before that.

For the whole of 2013, economists estimate the payroll tax hike will reduce household incomes by roughly $125 billion.

The payroll tax hike alone could reduce economic growth this year by about 0.7 percentage point, Dales said.


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1

 Jan 23, 2013 at 04:48 PM told u so Says:

shouldve elected romney and this wouldnt of happened

2

 Jan 23, 2013 at 08:12 PM puppydogs Says:

Just wait it will get worse........ thanks to the liberals tax rates will rise which will erode discretionary spending.

3

 Jan 23, 2013 at 11:00 PM A Says:

I can take the same information and twist it to suit whatever point I want to prove. There is no proof that this supposed slow down has anything to do with taxes. I say that sales are slower because people already spent their discretionary cash before and during the holidays. Or possibly the sales this year aren't anywhere near as good as last year's and people are waiting for better bargains. Or fewer people shop retail chain stores anymore, more people shop the internet.

4

 Jan 24, 2013 at 02:57 PM ShmuelG Says:

Reply to #3  
A Says:

I can take the same information and twist it to suit whatever point I want to prove. There is no proof that this supposed slow down has anything to do with taxes. I say that sales are slower because people already spent their discretionary cash before and during the holidays. Or possibly the sales this year aren't anywhere near as good as last year's and people are waiting for better bargains. Or fewer people shop retail chain stores anymore, more people shop the internet.

... or you are just trying to defend the indefensible, just not to admit that Hussein is harmful to our economy, not to mention the way of life.

5

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