Payroll Tax Increase

The U.S. Governments budget for January has a $2.8 billion surplus for the first time in five years.  This was mainly due from increase in payroll taxes and individual income taxes.  The U.S. Economy has been in recovery mode and will continue to improve, slowly.

On the other hand, that same payroll tax increase is slowing sales at the largest discount retailer, Wal-Mart.  Wal-Mart has just announced they had the worst sales start to a month in seven years, blaming the payroll tax increase.  January Retail Sales numbers were posted this past week on February 13th, with an increase of .2%.  And this was the third increase in a row for Retail Sales.   So where have all of Wal-Mart customers gone?  My guess is the lower discount stores – The Dollar Stores.  Consumers are more likely to buy only what they need, shopping with discipline.  The increase in Retail Sales may have come from bargain shoppers who always spend in January or is it possible the higher end shoppers are now buying more at the medium price retail stores.  Hmm… how long will that last?

A long-term view is that Housing prices are increasing as well as Equity prices and this all adds up to an increase in net worth.  An increase in net worth is positive for the household sector.  And this brings us back to the retailers.