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Retail sales increase despite payroll tax hike

At the start of the year most Americans faced the reality of a higher payroll tax. The tax, which went up by 2% resulted in smaller paychecks, spurring fear in retailers that consumers would cut back on their spending.

January retail figures were released Wednesday, and while four weeks worth of data is clearly not a large enough sample to predict how things will progress over the next few months, it does give us a little insight to the impact the higher taxes will have on the retail industry.

During the month, retail and food services sales increased by 0.1%, which was in-line with what analysts had forecast. With the increase, we have now seen three consecutive months of rising retail sales, and January's figure was up 4.4% from the same month last year.

While on the surface this sounds great, not all the news was so optimistic. Retail sales jumped at grocery stores and gasoline stations, but discretionary spending at restaurants, furniture stores, and car dealerships was either flat or lower during the month, indicating that consumers may be a bit worried about spending more money they absolutely have to.

When economists try to truly gauge the condition of the retail industry, they prefer to look at the number excluding autos, building materials and gasoline. In this case, sales were up 0.2%, which fell short of the 0.3% analysts were expecting.

On the other side of the coin, spending at department stores rose. This is encouraging, but could also be a result of big promotions that were put in place in order to clear store shelves of leftover holiday merchandise.

I personally believe that today's news cast puts a positive light on retail for the upcoming months. Yes, I would have liked to see better numbers for discretionary spending, but the fact that total retail spending rose indicates to me that people are still willing to spend, and that is crucial for the economy to continue to recover.

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors. Follow him on Twitter at @MFatMICenter.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.