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Payroll tax increase dampens consumer spending in March

national retail federationConsumers reduced their spending in March as they adjusted to the payroll tax increase that contributed to the first decline in retail sales since October.

March retail sales, excluding gas stations, automobiles and restaurants, fell 0.2 percent adjusted from February, though overall spending did increase an unadjusted 1.6 percent year-over-year.

“Retail is the vehicle that drives our economy, and the consumer dictates the speed,” National Retail Federation President and CEO Matthew Shay said. “With consumer confidence low, Washington decision makers need to focus on a long-term, economic roadmap that creates fiscal certainty for American families. And we need policies that encourage job growth and capital investment by business generally and the retail industry specifically, an industry that supports one in four American jobs.  Without either, economic recovery will continue to sputter along, and the consumer will keep their foot off the pedal.”

Data released last week by the U.S. Department of Commerce revealed total retail and food service sales fell 0.4 percent adjusted month-to-month and increased 2.8 percent adjusted year-over-year.

While retail sales in building material and garden equipment, clothing and clothing accessories, furniture and home furnishings and non-store retail saw a month-to-month increase, sales in electronics and appliances, general merchandise, health and personal care and sporting goods and book and music stores saw a decrease.

“The fall off in spending is no surprise,” NRF Chief Economist Jack Kleinhenz said. “A colder-than-usual winter, an anemic employment picture and delays in tax refunds impacted consumer spending across the board in March. While we remain optimistic that retail sales will grow modestly this year, it seems like the economy is off to a shaky start as we enter the second quarter. Improving housing prices and lower gas prices may help to offset the toll of increased taxes and sequester.”

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