Retailers in Focus

This week kicks off earnings season for the retail industry, and while we’ll be paying attention to fourth quarter results, first quarter outlooks will be more important.  These outlooks come as many economists are pointing to increased taxes initiated at the beginning of this year as having a negative effect on consumer spending.  Many analysts have stated it will take a month or more for workers to realize the significance of the 2% payroll tax hike coupled with higher marginal rates and healthcare tax collections for some upper income earners.  We haven’t seen the effect in the numbers yet as January retail sales were 0.1% higher than December, beating expectations.  However, certain signs of weakness have emerged.  On Friday, Wal-Mart’s stock was down over 2% after Bloomberg reported a leaked internal email from Wal-Mart’s VP of sales and logistics stating that sales in the first two weeks of February “are a total disaster.”  With consumer spending representing two-thirds of the U.S. economy, any negative effect from higher taxes will have a profound effect on economic growth.  Management comments and outlooks should help us get a sense of whether these types of emails are simply noise, or something more significant.