According to a WSJ article today, U.S. retail sales fell for the third straight month.  This seemed to generate a lot of head scratching from the article’s author, who stated, “the drop was unexpected in part because many Americans’ tax withholdings dropped in early February due to a $1.5 trillion tax break signed into law late last year.” However, a look at the beneficiaries of this tax largess highlights the fact that most of the benefit went to the top 1% (they do pay most of the taxes). Those in the bottom 60% of income receive a very modest reduction, with the bottom 20% getting an average $60/year in tax savings.

Just how much of a benefit will retailers actually see when most of the tax break goes to the very highest income earners who likely already have most of what they need? Furthermore, the U.S. savings rate is at a decades low 2.4% in 2017.  Also, total consumer debt is at an all-time high, with auto and student loan debt eclipsing $1 trillion each, revolving credit debt at more than $800 billion, and mortgage debt on one to four family homes at greater than $10.6 trillion.

As we’ve reported in many KCS blog posts, U.S. wage growth has been fairly stagnant for the past two decades. Given that U.S. GDP is driven by personal consumption (still roughly 70%), the combination of modest wage growth and higher levels of debt should constrain the average American consumer. Had the proceeds of the significant corporate tax rate cut been used to reinvest in plant, equipment, inventory, jobs, and wages, we’d likely see a significant economic pop, but early indications suggest that corporate America would rather buy-back shares than invest in their businesses or workers!