WASHINGTON, Wed Jan 23, 2013 — A slowdown in sales growth at many big U.S. retailers suggests a clutch of tax hikes enacted this month is already leading consumers to hold back on spending, putting a brake on economic growth.
Sales growth has cooled for three straight weeks when measured from a year earlier in the Johnson Redbook Retail Sales Index, data showed on Wednesday.
Similarly, the ICSC U.S. retail chain store sales index, which is the other major weekly barometer of retail spending, has showed weakening of growth in the last two weeks.
“We can very tentatively say that these numbers look consistent with our view that the increase in taxes at the start of 2013 led to a slowdown in consumer spending,” said Daniel Silver, an economist at JPMorgan in New York.
Washington this month raised taxes on most Americans.
The brunt of the tax hike came from the expiration of a temporary payroll tax cut. That cut — a 2 percentage point reduction in a levy that funds Social Security — was put in place two years ago to help the economy, which was still smarting from the 2007-09 recession.
About 160 million workers pay this tax, and the increase will cost the average worker about $700 a year, according to the Tax Policy Center, a Washington think tank.
Congress and President Barack Obama also allowed income tax rates to rise this month for households making more than $450,000 a year, a partial repeal of tax cuts put in place under President George W. Bush. The wealthy will also pay a new tax to help fund a health insurance reform passed in 2010.
These will have a smaller impact on the wider economy because they affect fewer people. But taken together, this year’s tax hikes could subtract a full percentage point from growth, JPMorgan estimates.
Some economic data appears to be bearing out economists’ predictions.
Compared to the same week one year earlier, the Redbook index rose 1.8 percent in the week ending Jan. 19, down from 1.9 percent in the Jan. 12 week and 2.1 percent in the Jan. 5 week. Sales were up 2.9 percent in the Dec. 29 week from a year earlier.