Every employed American gave a little groan when opening up the first paycheck of the year. The reason? The government’s fiscal cliff deal failed to renew the payroll tax cuts, decreasing paychecks by 2 percent compared with the past two years.

Consumers read troubling economic headlines every day and look at their bottom lines at the end of the month, and they don’t like what they see.

The implications are serious, the National Retail Federation notes in a recent article from The Business Review. In a still-wobbly economy, consumer spending is a huge part of  the nation’s economic activity, accounting for nearly 70 percent of the GDP.

Along with the end of the tax holiday, higher-income Americans were hit with an increase in their tax rates and income from investments.

So what does this mean? NRF predicts growth of 3.4 percent for retail sales in 2013, versus last year’s 4.2 percent increase.

“While it’s too early to know the full effect of higher payroll taxes, there’s no question that many consumers will feel some kind of impact from the change in their paychecks,” said NRF Chief Economist Jack Kleinhenz in a statement.

NRF predicts consumers will again try and cut back on spending, perhaps with less of a focus on brand-name items.

Several factors contributed to the group’s 2013 predictions, including:

• The national unemployment rate holding steady at 7.9 percent
• Only modest income growth
• Inflation
• Low consumer confidence

But there is a silver lining: NRF’s digital division predicts that online sales will grow between 9 percent and 12 percent this year.

Still, the greatest factor is consumer confidence, which needs to increase drastically before any big spending occurs.

“Consumers read troubling economic headlines every day and look at their bottom lines at the end of the month, and they don’t like what they see,” said NRF president and CEO Matthew Shay.

 

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