NEW YORK — 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 holiday 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 rising gas prices, delayed income tax refunds and higher payroll taxes.
Melanie M. Burkhardt, the mother of two teenagers, is one of those people. Burkhardt, a Waycross, Ga., resident, said she's been hit with a double whammy: the payroll tax hike, which has cut her household monthly income by $260, and higher gas prices.
"We had to do a flip on our budget," Burkhardt, a legal assistant, said. "This is money we used for things like going to a movie or splurging at Olive Garden. Not anymore."
Wal-Mart is the latest in a string of big-name companies from Burger King to Zale to say 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 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 31/2 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
At the same time, 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 people.
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.
Wal-Mart, based in Bentonville, Ark., said its business has been volatile since December, and February, in particular, has been "slower than planned" largely due to the tax refund delay. The company said that resulted in Wal-Mart customers cashing about $1.7 billion in income tax refunds year to date, compared with $3 billion for the same period a year ago.
Bill Simon, president of the company's U.S. namesake division, said shoppers used their refund money last year to buy TVs ahead of the Super Bowl. This year, the retailer said it isn't sure how customers will use the additional money, but some analysts say the most likely scenario is that they'll save it.
Wal-Mart said it's also unclear how the payroll tax will affect customers' spending habits, although Simon said shoppers are "talking about it." JP Morgan estimates that the payroll tax increase will equate to $70 a month less in take home pay for Wal-Mart shoppers, assuming an average annual income of $42,500. As a result, Wal-Mart is offering smaller packaging and less expensive products.
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