Taxes, Sequester Gloom Don't Phase Consumers as Retail Sales Jump

Taxes, Sequester Gloom Don't Phase Consumers as Retail Sales JumpA 2 percent jump in the payroll tax and delayed tax refunds haven’t had much impact on consumer spending as retail sales rose at an annual rate of 1.1 percent in February, powered partly by strong auto sales.
Once again, a key economic report beats estimates handily as did the jobs report 13 days ago.
The retail sales figure was nearly double what many economists had projected.
The most recent data on consumer behavior follows a steady string of strong housing market data, including multi-year highs for both new housing permits and pending home sales.
Retail sales were 4.6 percent higher in February than a year ago.
Auto sales were up 1.1 percent compared to January, a big contributor to the overall figure. Even factoring in higher gasoline prices sent spending higher — at 0.6 percent in February.
The end of the payroll tax holiday on Jan. 1 was suppose to curtail consumer spending, which is the largest single component of an economic recovery. Workers started paying the full 6.2 percent in Social Security taxes, up from the 4.2 percent that had been in effect since 2010.
However, the February jobs report released on March 1 also blew past Wall Street estimates. The unemployment rate fell to 7.7 percent in February from 7.9 percent, and 236,000 nonfarm jobs were added to payrolls.
There is still the spectre of the “sequester,” or the automatic spending cuts to the federal budget, possibly slowing consumer confidence in coming weeks. But even that has stopped the more optimistic forecast for first-quarter GDP growth.
The retail sales report was so good it convinced investment bank Barclays to raise its first-quarter economic growth estimate to 2.2 percent from 1.9 percent.
Mesirow Financial economist Diane Swonk told that much credit for robust consumer confidence goes to the steady rebound home sales and rising home prices.
“It really is important to understand the interactive role that jobs and wealth create together. The jobs picture has improved, and while it is not perfect, it’s important,” she said. “That is one of the pivotal points, and it’s been a real game changer. The biggest pain we face is self-inflicted, and that is a major shift from where we’ve been in the recovery.”

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