AP News

Ahead of the Bell: US retail sales

WASHINGTON (AP) — Retail sales likely showed only a modest increase in December, as consumers were worried about the outcome of the "fiscal cliff" negotiations.

Economists are forecasting that retail sales edged up 0.2 percent in December, according to a survey by FactSet. The report will be released by the Commerce Department at 8:30 a.m. EST Tuesday.

In November, retail sales had risen 0.3 percent, indicating that Americans spent more online to start the holiday season. Sales were also helped by a rebound in activity in the Northeast after Superstorm Sandy.

Fears about sharp tax increases and government spending cuts had sent consumer confidence down for a second straight month in December. The Conference Board reported that its gauge of consumer confidence fell to 65.1 in December, its lowest level since August.

Employers added 155,000 jobs in December, but the unemployment rate remained at a still-high 7.8 percent.

The rise in employment was encouraging because even with the fiscal cliff resolved, there is an even bigger budget showdown looming. Congress must vote to raise the government's $16.4 trillion borrowing limit as early as mid-February.

If the debt ceiling is not increased, the government risks defaulting on its debt.

While Republicans have said they will demand deep spending cuts as the price of raising the debt limit, President Barack Obama on Monday repeated his vow not to negotiate with Republicans over increasing the debt ceiling, saying it was too risky for the country to use a debt ceiling deadline to force spending reductions.

The overall economy grew at an annual rate of 3.1 percent in the July-September quarter but economists believe growth slowed to below 2 percent in the October-December period, in part because of expected weakness in consumer spending. Income growth remains weak, constraining the amount that consumers can devote to increased spending.

Congress and the Obama administration did reach a last-minute agreement to avert the fiscal cliff, the combination of sharp tax increases and spending cuts that would have taken effect at the beginning of the new year without an agreement.

The agreement protected 98 percent of Americans from seeing their income tax rates increase although taxes did go up for the wealthiest Americans. In addition, all workers got hit at the beginning of the year with higher Social Security taxes.

Congress decided against extending a two-year Social Security tax cut. The tax increased at the start of the year back up to 6.2 percent of wages from 4.2 percent. The increase will cost someone making $50,000 about $1,000 a year and a household with two high-paid workers up to $4,500.

Mark Zandi, chief economist at Moody's Analytics, is forecasting that the higher Social Security tax will slow growth by 0.6 percentage point in 2013. Other tax increases — including higher taxes on household incomes above $450,000 a year — will slice about 0.15 percentage point from growth, Zandi said.

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