February 17, 2013
In the first test of resilience after January's payroll tax hike, consumers achieved a passing score as they went shopping and bought more than economists had expected.
The results showed up Wednesday in the Commerce Department's January retail sales numbers, and they were a relief to investors who have been fond of companies that depend on consumers' discretionary spending. The stocks have climbed almost 7 percent this year.
Economists liked the numbers too. They had predicted that a 2 percentage-point jump in the payroll tax would cause people to hold on more tightly to their cash and would take a toll on the economy's recovery.
Then came the Michigan consumer sentiment survey Friday, and the second resiliency test was positive too. Consumers had shaken off the gloom that overtook them in December as Congress bickered about the "fiscal cliff" and the nation's debt ceiling. The latest numbers showed Americans feeling more optimistic about the future.
But the tests are not over. And Bloomberg on Friday suggested a different type of score. It referred to an internal Wal-Mart report in which a vice president said sales at the start of February were the worst in seven years and referred to them as "a total disaster."
That made investors second-guess discounters and other retailers that cater to moderate-income customers. Wal-Mart stock fell about 2 percent, and companies such as Target and J.C. Penney followed.
Still, the tests are inconclusive because some companies haven't finished the process of taking higher payroll taxes out of paychecks on a routine basis.
Economists had expected the largest impact of the payroll tax hike to be on lower-income shoppers, or those who tend to buy at stores such as Wal-Mart. But they have been surprised up to now that there seemingly has been little impact from the tax increase.
In a note Thursday, Goldman Sachs economist Jan Hatzius said that although he had estimated the higher tax would shave 1 percent off personal consumption expenditure growth for the first half of 2013, there has been little evidence in hard data.
And he noted that although taxes have climbed, individuals have also had the advantage of 3 percent real wage and salary income growth since summer.
Chris Christopher, an economist with IHS Global Insight, also noted that consumers might be feeling more optimistic than expected because the stock market and home prices have been rising and providing people with an increasing sense of wealth.
The good news from the stock market continued last week, with the Standard & Poor's 500 completing its seventh week of gains. It closed at 1,519.79, with investors clearly waiting for evidence from the economy that there remains enough strength in the economy to propel stocks higher.
Gold investors should not be feeling as comfortable as stock investors. The SPDR gold trust exchange traded fund has declined 5.26 percent in the last three months, and gold on Friday hit a six-month low of $1,596 before settling at $1,609 a troy ounce. The precious metal was struggling after reports that prominent hedge fund managers such as George Soros have been selling gold holdings.
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