American consumers are starting to regain confidence as an improving job market eases the strain caused by a higher payroll tax.
The Bloomberg Consumer Comfort Index climbed to minus 36.3 in the week ended Feb. 3, marking the first gain since the two percentage-point increase in the levy that funds Social Security took effect at the start of the year. Another report showed fewer workers filed claims for jobless benefits last week.
Chains including Macy’s Inc. (M:US), Gap Inc. (GPS:US) and Target Corp. (TGT:US) today reported January sales that topped analysts’ estimates, indicating gains in hiring, stock prices and home values are helping make up for the reduction in take-home pay. At the same time, climbing gasoline costs and looming cuts in government spending may prevent the world’s largest economy from making a stronger comeback following a fourth-quarter slump.
“The next few months are going to be difficult for the economy given the fiscal drag, and the job market may make or break the next few months,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, the most accurate claims forecaster over the past two years, according to data compiled by Bloomberg. “The job market needs to generate the wage income necessary to support spending.”
Shares retreated, after a two-day advance in the Standard & Poor’s 500 Index, as corporate earnings disappointed. The S&P 500 fell 0.2 percent to 1,509.39 at the close in New York.
Elsewhere today, India forecast the weakest economic growth in a decade as subdued investment and elevated inflation add pressure on Prime Minister Manmohan Singh to extend policy changes and revive his development agenda.
A report from the Labor Department showed the number of applications for jobless benefits in the U.S. fell by 5,000 to 366,000 in the week ended Feb. 2. Economists forecast 360,000, according to the median of 53 estimates in a Bloomberg survey.
Claims, after see-sawing in prior weeks as the government had trouble adjusting the data for seasonal swings, are settling at a level that signals there is little change in the pace of firings from last year. The data come after a report last week indicated employers are boosting payrolls at a faster pace as demand holds up.
The Consumer Comfort Index climbed last week from minus 37.5 in the previous seven days, the weakest since early October. The gain, reflecting advances by all three of its components, was the first in five weeks and within the margin of error of 3 percentage points.
“An easing of policy tensions in Washington and sustained improvement in the labor market likely prevented further deterioration” in sentiment, said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The gains appear somewhat tentative given rising gasoline prices, which are reducing discretionary consumption just as households are having difficulty adjusting to the resetting of the payroll tax.”
The comfort index’s measure of personal finances climbed last week to the highest level this year. The gauge assessing Americans’ views on the current state of the economy improved for a second week, and the buying climate index rose from a fourth-month low.
Same-store sales at Cincinnati-based Macy’s, the second- largest U.S. department-store chain, advanced about 12 percent, surpassing the average projection of 5 percent from analysts surveyed by researcher Retail Metrics Inc., figures showed today. San Francisco-based Gap, the largest U.S. apparel chain, boosted sales 8 percent, double the average estimate of 4 percent. Target, based in Minneapolis and the second-largest U.S. discounter, posted a gain of 3.1 percent, above projections of 1.7 percent.
Same-store sales for the more than 20 companies tracked by Retail Metrics surged 4.5 percent last month from January 2012, the biggest year-to-year gain since September 2011.
Employers added 157,000 workers in January after a revised 196,000 gain in December and a 247,000 jump in November, a Labor Department report last week showed.
In addition to progress in the labor market, lower borrowing costs are helping fuel spending on big-ticket items such as cars. Auto sales totaled 15.2 million at an annual rate last month after 15.3 million in December, according to data from Ward’s Automotive Group. The January pace compared with a 2012 average of 14.4 million.
Households boosted their purchases at a 2.2 percent annual rate in the final three months of 2012, up from 1.6 percent in the third quarter, Commerce Department data show.
Americans may also feel wealthier after a rally in stock prices. The S&P 500 climbed 5 percent in January, its biggest gain for the month since 1997.
One drawback is that fuel costs are starting to increase. Since reaching a recent low of $3.22 on Dec. 19, the average price of a gallon of regular gasoline has increased about 34 cents, according to data from AAA, the largest U.S. motoring organization.
Companies are waiting to see how consumers respond to the increase in the payroll tax, which Congress allowed to revert to its 2010 level of 6.2 percent from 4.2 percent starting in January. A worker earning $50,000 is taking home about $83 less a month because of the higher levy.
“Housing looks like it’s getting better and the stock market is doing better,” Hanesbrands Inc. (HBI:US) Chairman Richard A. Noll said on a Feb. 5 earnings call. Retailers of the Winston- Salem, North Carolina-based maker’s products, which include Wonderbra and Champion apparel, “started being a little bit more cautious” coming into 2013, he said.
“I think everybody’s just a little wary about what’s going to happen with the tax increases and importantly the delayed tax refunds to consumers and is that going to impact spending,” he said.
The Internal Revenue Service did not begin accepting and processing 2012 returns until Jan. 30, later than its original Jan. 22 electronic filing start date, due to Congress’ last- minute Jan. 1 tax deal. That, combined with the IRS’s efforts to prevent fraud, could slow refunds.
Also today, another Labor Department report showed worker productivity fell in the fourth quarter by the most in almost two years, pushing labor expenses up more than forecast, a sign businesses are near the limit of how much efficiency they can wring from employees.
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