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Wednesday's U.S. retail sales report will be the key economic data point for the week, offering the first look at the potential negative effects of the "fiscal cliff" tax legislation.
The Bloomberg survey of 69 prominent economists points to month over month retail sales growth of 0.1 per cent. But this average number understates the extent to which the guesses are all over the map, ranging from –0.9 per cent to +0.6 per cent.
Economists are clearly struggling to project the effects of new tax legislation. The Congressional "fiscal cliff" settlement included a 2-per-cent rise in payroll taxes which, for all the rhetoric about soaking the rich, will affect all U.S. workers. The resulting decline in disposable income is expected to reduce consumer spending, although by how much is not yet clear.
The timing of the tax hike is far from ideal. This chart shows the steady deterioration in consumption growth that began in early 2011. Chastened by the housing crisis, U.S. consumers appear to be holding back.
The oft-quoted statistic that the U.S. economy is 70 per cent determined by consumer spending is somewhat deceptive in that it is the only country that includes health care as a consumer good. A like-versus-like comparison would put U.S. consumers as 55 per cent of gross domestic product. Nonetheless, the U.S. consumer remains among the world's dominant economic forces, and the rate of change in U.S. retail spending patterns is an important forward-looking indicator for both the global economy and equity markets in general.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.