Retailers: Payroll Tax Hit Is Going to Hurt

Nearly half of consumers say they'll spend less: survey

By Matt Cantor,  Newser Staff

Posted Feb 22, 2013 3:26 AM CST

(Newser) – Major retailers are preparing for customers with less cash in their pockets, thanks in part to the newly restored payroll tax, the Wall Street Journal reports. Rising gas prices aren't helping, either. Some 45.7% of consumers plan to spend less in the face of 2% lower take-home pay, a trade survey finds—so companies like Walmart and Kraft are trumpeting less expensive items while Burger King cuts the price of a Whopper Jr.

Consumers as a whole will have $110 billion less to spend this year because the payroll tax cut expired last month, Citigroup says. Meanwhile, gas prices have climbed almost 50 cents per gallon over the past month. With a lower-income customer base, "Walmart serves as a leading indicator" of consumer habits, says an analyst. But others are more positive about spending after the tax change: Once people "start to accept it as the new normal, they'll go back to their normal spending patterns," says a restaurant strategist.

Wal-Mart is showcasing cheaper products as the payroll tax returns.
Wal-Mart is showcasing cheaper products as the payroll tax returns.   (AP Photo/Damian Dovarganes)
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