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Wal-Mart's glum forecast mirrors economy

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By The Associated Press
Friday, Feb. 22, 2013, 12:01 a.m.
 

NEW YORK — As the fortunes of many Americans go, so goes Wal-Mart, so goes the economy.

Even as the world's largest retailer on Thursday reported an 8.6 percent rise in fourth-quarter profit during the busy holiday shopping season, it offered a weaker forecast for the coming months. The problem? The poor and middle-class Americans who shop at Wal-Mart — and who are big drivers of spending in the United States — are struggling with rising gasoline prices, delayed income tax refunds and higher payroll taxes.

It's widely known that Americans in the lower income brackets continue to struggle, even as higher earners benefit from improved housing and stock markets, but Wal-Mart's results signal that matters may be getting worse for the nation's poor and middle class.

Wal-Mart is the latest in a string of big-name companies from Burger King to Zale to say those Americans are being squeezed by new challenges. Since Wal-Mart accounts for nearly 10 percent of nonautomotive retail spending, it is a bellwether for the economy.

“Wal-Mart moms are the barometer of the U.S. household,” said Brian Sozzi, chief equities analyst at NBG Productions who follows Wal-Mart. “Right now they're afraid of higher taxes and inflation.”

Indeed, while wealthier households have seen their stock portfolios grow, poor and middle-class Americans have struggled to regain their financial footing since the recession ended more than 3½ years ago.

Stocks have nearly doubled since June 2009. Dividends and capital gains from stocks, which disproportionately benefit higher-income Americans, are taxed at lower rates compared with ordinary income.

While incomes for most Americans have failed to keep pace with inflation since the recession, that's been particularly true for middle and lower-income earners.

Another hurdle for lower- and middle-income Americans has been the jump in gasoline prices since mid-January. The average price for a gallon of gas rose 47 cents in the past month to $3.78 on Thursday, according to AAA.

Tax changes also have hit the nation's lowest earners especially hard. On Jan. 1, Social Security payroll taxes rose 2 percentage points after a temporary reduction expired. That sliced about $1,000 from the take-home pay of a household earning $50,000.

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