Confidence falls as U.S. payroll tax rise hits

Bloomberg Measure

The figures are in line with Bloomberg’s Consumer Comfort Index, which dropped last week to a three-month low, reflecting a fourth straight decline in the buying-climate gauge.

The Michigan index of expectations six months from now, which more closely projects the direction of consumer spending, dropped to 62.7, the lowest since November 2011, from 63.8 the prior month. Household purchases account for about 70 percent of the economy.

The measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to a six-month low of 84.8, from 87 in December.

While Americans took comfort in resolution of the so-called fiscal cliff, in which lawmakers averted income-tax increases on 99 percent of households, payroll taxes went up. As part of its budget agreement on Jan. 1, Congress agreed to let the tax, used to pay for Social Security benefits, return to its 2010 level of 6.2 percent from 4.2 percent. That reduces the paycheck by about $83 a month for someone who earns $50,000.

Payroll Tax

“Things like increases in payroll taxes are not a positive from my perspective,” Howard Levine, chief executive officer at Family Dollar Stores Inc., the second-largest U.S. dollar-store chain, said on a Jan. 3 earnings call. “What I think happens is there will be some further impact to our core customer as a result of some of these tax increases. But I also think we’re positioned very nicely for a trade-down customer.”

Target, the second-largest U.S. discount retailer, said earlier this month that it plans to match the prices year-round charged by e-commerce sites of Inc., Wal-Mart Stores Inc., Best Buy Co. and Toys “R” Us Inc. in a bid to boost sales.

The new policy combines Target’s holiday-season price policies into one year-round and easy-to-use system, the Minneapolis-based company said in a statement. Target’s stores will also match the prices of goods found on its own website, it said.

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