Consumer spending looks a bit shaky all of a sudden
Writing at Breitbart News, Tony Lee notices a rather large flock of vultures circling in the sky above certain consumer-spending indicators:
When President Barack Obama and Congress agreed to increase the federal payroll tax by two percent to temporarily avert the so-called fiscal cliff in January, Americans were left with less money to spend. Now, some of the country’s largest companies are seeing sales plummet as a result.
On top of high gas prices, job uncertainty, and stagnant wages, the payroll tax cut expiration, which increased that tax by 2%, will “ding a household with $65,000 in annual income $1,300 this year.” Citigroup estimates the payroll tax increase will take “$110 billion overall out of consumers’ hands.”
According to the Wall Street Journal, companies like WalMart, Burger King, Kraft Foods, and Tyson Foods have said they are lowering earnings forecasts and “adjusting sales and marketing strategies, expecting consumers with smaller paychecks to dine out less and trade down to less expensive purchases.”
Ominously, these changes appear to be more than just a temporary blip, and the companies Tony mentions are viewed as leading indicators for the rest of the economy.
I recall hearing many such rumblings of a consumer slowdown when the last round of dead-fish GDP numbers came in. Actually, signs were visible to those who looked for them as far back as last summer. But the same media that once helped challenger Bill Clinton sell a narrative of “the worst economy in the last fifty years” had no interest in looking for such signs before the 2012 election.
This is very bad news, because even the anemic GDP growth we’ve been seeing lately has been largely propped up by consumer spending. On the other hand, after four long years, we have finally discovered an economic prediction of Barack Obama’s that turned out to be accurate. Remember, back in 2011, this was exactly what he said would happen, if his much-touted “payroll tax cut” were to end. It’s the one and only “stimulus” idea he ever had that might have done some good… in the short term.
But when it came time to scream for higher taxes in the fiscal cliff showdown, Obama suddenly forget all about his payroll tax cut. A media interested in keeping score would portray it as one of the most stunning policy reversals in recent memory. A tax cut that was supposedly propping up the 2011 economy, and whose continuation was a major fixation of the vast Obama campaign machine, was abandoned without a word in the somewhat weaker economy of 2012.
This should all be taken as an object lesson in the folly of relying on short-term “stimulus” gimmicks instead of real, lasting tax reform. The Bush tax cuts never should have been temporary, and the tax relief offered to consumers in Obama’s moribund economy never should have been a short-term lollipop financed by a raid on Social Security funding. And we need more than just bursts of energetic consumer spending; we need the kind of long-term investment and wealth accumulation that comes only from low, stable, simple taxes. This government needs to be slashed, and so does the American tax burden. We don’t need a few crumbs tossed through the bars of our cages, to keep us happy just long enough for the successful conclusion of a re-election campaign.