Retail sales for January

Higher Payroll Tax Pinches Those With Least to Spare

Chain-store sales have weakened over the course of the month. And two surveys released last week suggested that consumer confidence was eroding, especially among lower-income Americans.

Was this supposed to be surprising?  It isn't really.  Cut an individuals paycheck by 2% when that person basically lives paycheck to paycheck, and there really isn't any choice for that person other than cutting spending.

Retailing analysts and economists say high-end earners will largely be spared.

Do we really need to hear from retail analysts and economists to know this?  Yes, there is a cap on Social Security taxes, so for those that make a lot of money, the increase in this tax will hardly be noticeable.

“There is something going on,” said Chris G. Christopher Jr., senior principal economist at IHS Global Insight. “The payroll tax seems to be cutting into things.”

Ya think?

“The food that has a lot of fat and food coloring is cheaper,” she said. “It’s a lot more expensive to eat healthier. But now I’m actually looking at the price tag on things rather than grabbing them.”

Careful, now... the government may decide to fix that by outlawing cheaper food, you know, for your own protection.

This isn't surprising at all.  The questions that should be on everyone's mind is how this might affect the discussions on spending cuts, and whether the Fed's QE will be enough to buoy stock prices.

Not surprisingly, as I'm writing this stocks are down a bit, while bond yields are also down, indicating some movement back to safety.

Of course, there is also another story that seems to conflict with the above story:
Jobless claims point to healing in labor market

While the headline is about the labor market, and some promising signs there, further in, the article starts talking about retail sales.

Consumer spending has looked more robust, and many U.S. retailers on Thursday reported strong sales in January.

Well, maybe not a real conflict... it's possible that higher earners have picked-up the spending since the first article specifically addressed lower wage earners. Maybe, though, this is a temporary thing brought on by the surge in dividend income from December, when a lot of companies hurried to make dividend payments early to avoid the higher taxes.

Well, no matter.  I don't see anything to celebrate about the economy.  I do think we are heading toward recession, if we're not already there.