U.S. Economy: Spring Sequester Swoon Could Extend into Summer

After a surprising decline of 0.5% in March, little recovery in retail buying in April reflects a lack of growth in spending power, a delayed impact of the higher payroll tax rate, and continued concern about the negative impact of the sequester.

The combined fiscal drag from the increased payroll tax rate and sequester spending cuts total $225 billion for this year, which offsets the positive wealth effect created by the rise in equity prices and appreciation in home prices over the past year.

The spring swoon comes after a winter spending spree of which the window of retail opportunity has apparently closed. Consumers are back into deleveraging mode (paying down old debt and refraining from adding new debts).

his allows little room for the release at long last of pent up demand, as the economy approaches the 4^thanniversary of the end of the Great Recession. If job and income growth pick up in the second half of 2013, there may be the opportunity to release some of that pent up demand. Meanwhile, retailers, with the exception of auto showrooms, wait and wonder.

Source: The Conference Board

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