Wal-Mart Outlook Gives Glimpse of Economy

NEW YORK (AP) —

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

Even as the world’s largest retailer reported an 8.6-percent rise in fourth-quarter profit during the critical year-end shopping season, it offered a weaker forecast for the coming months. The problem? The poor and middle-class Americans Wal-Mart caters to, and who are big drivers of spending in the U.S., are struggling with higher gas prices, delayed tax refunds and higher payroll taxes.

Wal-Mart is the latest in a string of big-name companies from Burger King to Zale to warn that Americans are being squeezed by these new challenges. But since Wal-Mart accounts for nearly 10 percent of nonautomotive retail spending in the U.S., it is a bellwether for the economy. 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 them.

“Wal-Mart moms are the barometer of the U.S. household,” said Brian Sozzi, chief equities analyst at NBG Productions. “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 three and a half years ago.

Stocks have roughly doubled since June 2009. At the same time, dividends and capital gains, which disproportionately benefit higher-income Americans, are taxed at lower rates compared with ordinary income

Median household income, adjusted for inflation, fell 1.5 percent to $50,054 in 2011 compared with 2010, the latest period for which figures are available, according to the Census Bureau. That was down 8.1 percent from 2007.

But lower and middle-income households fared worse. The share of overall income earned by the bottom 80 percent of households shrank in 2011, while the income for the top 20 percent grew. And in 2012, inflation-adjusted hourly pay barely rose, inching up 0.3 percent.

Another hurdle for lower- and middle-income Americans has been the jump in gas 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 lower and middle-income households especially hard. On Jan. 1, Social Security payroll taxes rose 2 percentage points after a temporary cut expired. That sliced about $1,000 from the take-home pay of a household earning $50,000. Since the Social Security tax is levied against income only up to $114,000, it disproportionately affects middle- and lower-income households.

An even larger challenge for many lower-income Americans has been the government’s delay in processing taxes and paying refunds. That’s because income tax rates weren’t set until a last-minute deal between the White House and Congress on Jan. 1. So the IRS pushed back the start of tax-filing season to Jan. 30, two weeks later than usual.

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