Retail sales in U.S. increase at slower pace as taxes take bite

Tax Changes

The fiscal pact passed by Congress on Jan. 1 avoided sweeping tax increases and made permanent George W. Bush’s income-tax cuts for 99% of Americans. At the same time, the agreement let the payroll tax used to pay for Social Security benefits return to the 2010 level of 6.2%, from 4.2%. A worker earning $50,000 a year is taking home about $83 less a month because of the higher levy.

Additionally, the Internal Revenue Service did not begin accepting and processing 2012 returns until Jan. 30, later than its original Jan. 22 electronic filing start date, due to Congress’ last-minute Jan. 1 tax deal. That, combined with the IRS’s efforts to prevent fraud, may slow refunds.

Steady progress in hiring may ease the pressure on household budgets. Employers added 157,000 workers to payrolls in January after a revised 196,000 rise the prior month and a 247,000 surge in November, Labor Department data showed Feb. 1. Revisions added a total of 127,000 jobs in the last two months of 2012.

Confidence among American consumers rose in the week ended Feb. 3 for the first time this year. The Bloomberg Consumer Comfort Index climbed to minus 36.3 from minus 37.5 the prior period, which was the weakest since early October.

A strengthening stock market also may boost consumer sentiment and spending. The Standard & Poor’s 500 index climbed 5% in January, its biggest gain for the month since 1997. The S&P 500 has rallied for six straight weeks, closing on Feb. 8 at the highest level since November 2007.

Bloomberg News

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