Retailers Versus the Payroll Tax Round 2: Expectations and Confidence
The metaphor isn’t perfect, but personal consumption expenditures account for as much as 70 percent of gross domestic product. Granted, some people take issue with the ratio, and government officials have cast doubt on the power of consumer spending to be the engine of economic growth that it once was, but it’s safe to say that consumer spending behavior is a tremendously important part of the economy.
Consumer spending is so important, that when an email from an executive at Wal-Mart (NYSE:WMT) reading “February MTD sales are a total disaster” was leaked, the Dow component stock fell 2.2 percent and dragged the major indices down with it. The implication of that email, originally obtained by Bloomberg, was that consumer spending behavior was becoming more conservative. The result was a waning tide that lowered all boats equally, and pulled dollars out of an already-struggling U.S. economy.
The first suspect was the expiration of the payroll tax holiday that affected about 160 million Americans. With fewer dollars in their pocket and uncertain economic headwinds battering them about, it’s only logical that consumers would tighten their financial belts, turn up their collars, and keep their wallets shut.
But at the end of last week, the nation’s second-largest supermarket chain reported earnings and dismissed concerns about the payroll tax negatively impacting sales…