Payroll Tax Hike And Auto Sales - Business Insider

Retail sales climbed by just 0.1 percent in January.? While this number may seem week, it was right in line with expectations.? And it was seen as confirmation that the initial impact of the recent payroll tax hike wasn't any worse than expected.

Most economists argue that we'll have to wait a month or two before we really understand the full impact of the tax hike.? (Indeed, leaked emails from Walmart suggest the impact of the tax hike is much worse than we think.)

However, Deutsche Bank's Joseph LaVorgna and Carl Riccadonna are particularly encouraged by one component of the recent retail sales report: auto sales.

From DB:

Additionally, January light unit motor vehicle sales totaled 15.3 million at an annual rate, the third-fastest pace since the last recession and barely down from December?s 15.4 million annualized tally. Thus far, consumers are not retrenching to the degree that many analysts feared. As a result, January retail sales are easily consistent with our expectation that personal consumption will rise at least 1.0% in the quarter, although the risks appear to be tilting toward a stronger number...

Deutsche Bank

Still, LaVorgna and Riccadonna will wait for the January income and spending report before they get really excited.

...the January personal income and spending report, which is released March 1, will provide significant additional information with respect to households? behavioral response to higher tax rates. In that report we will be watching in particular to see the overall trend in income growth (i.e. the dispersion between December and January due to tax optimization?this applies to both dividend and wage income), as well as the degree to which households may be dipping into savings (i.e. a lower savings rate) to support current quarter consumption.

If households, confident in improving job and income prospects, decide to temporarily push their savings rate lower?the economy could avoid the hit from the payroll tax hike...

Source: http://www.businessinsider.com/payroll-tax-hike-and-auto-sales-2013-2

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