The Daily Item, Sunbury, PA

Business

January 11, 2013

Consumer Comfort Drops as Americans Brace for Payroll Tax Boost

(Continued)

Washington, D.C. —

Other sentiment measures showed Americans' moods had soured before they knew lawmakers would allow taxes to rise. The Thomson Reuters/University of Michigan confidence index dropped to a five-month low in December. The decrease was the biggest in more than a year. The Conference Board's index fell last month by the most since early 2011.

To help manage the federal budget, lawmakers agreed on Jan. 1 to let a payroll-tax cut expire, which means an individual taking home $50,000 annually will lose a little more than $80 a month. The levy will probably have a larger impact on lower- income Americans.

"Near term, the environment remains difficult," Howard Levine, chief executive officer of Family Dollar Stores Inc., said during a Jan. 3 earnings call. "Recent consumer confidence commentary and muted holiday-sales results confirm to us that our customers remain cautious. I view things like payroll taxes, increased gas prices as things that go against our customer's wallet. Clearly, they do not have as much for discretionary purchases as they did."

Shares of the Matthews, N.C.-based dollar store chain, the second largest in the United States, tumbled 13 percent Jan. 3, the biggest drop in more than 12 years, after it posted weaker profit margins and cut its full-year profit outlook.

The Bloomberg index indicated those with less disposable income showed the biggest declines in confidence last week. Americans making between $25,000 and $39,999 were the most pessimistic in three months, and confidence among those earning $15,000 to $24,999 a year fell by the most in two months.

Consumers on the other end of the income scale remained more confident. Thursday's figures showed comfort among those earning $50,000 or more annually climbed to the highest level since November 2007. Sentiment among those making $100,000 or more was the highest since October 2010.

The fight over the federal budget also affected sentiment along partisan lines. The confidence gap between Republicans and the more optimistic Democrats was the widest in records going back to 1990.

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