Melanie M. Burkhardt, the mother of two teenagers, is one of those people. Burkhardt, a Waycross, Ga., resident, said she's been hit by a double whammy of higher gas prices and the payroll tax hike that has cut her household monthly income by $260.
"When this came about, 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 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 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 3 1/2 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.
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, just before the recession began. (The median is the point halfway between the highest and lowest levels.)
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.
As a result, by Feb. 14 the government had paid only $55 billion in refunds, down from $77 billion at the same time last year, according to an estimate by UBS. That drop of $22 billion is more than twice the impact of the higher payroll tax. Refunds have accelerated recently and will eventually be paid out, but the impact still can be felt by many taxpayers: About 78 percent of taxpayers receive refunds, and the figure rises to 82 percent for those reporting income below $50,000.
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.
Wal-Mart is facing other challenges besides the economy, though. The company that it's still grappling with allegations that surfaced last April that it failed to notify law enforcement that company officials authorized millions of dollars in bribes in Mexico to speed up getting building permits and gain other favors. The Foreign Corrupt Practices Act forbids American companies from bribing foreign officials.
The company has launched its own investigation and is working with government officials in the U.S. and Mexico. In November, the retailers said in a filing with the Securities and Exchange Commission that it was looking into potential U.S. bribery law violations in Brazil, China and India.
During a pre-recorded call to investors Thursday, CEO Mike Duke said that the company has "made significant improvement" to its compliance programs around the world.
In the fourth quarter, Wal-Mart earned $5.6 billion, or $1.67 per share, up from $5.16 billion, or $1.50 per share, a year earlier. Results were helped by a lower tax rate, which was 27.7 percent, compared with the rate of 30.9 percent a year ago. Net sales rose 3.9 percent to $127.1 billion.
Earnings topped Wall Street estimates of $1.57 per share, but sales fell short of the $127.8 billion analysts were expecting.
During the current quarter, Wal-Mart says it expects earnings to range from $1.11 to $1.16 per share, below the $1.18 per share analysts polled by research firm FactSet are expecting. Wal-Mart says its guidance includes about $40 million to $45 million in first-quarter costs related matters involving the Foreign Corrupt Practices Act and compliance issues.
For its namesake U.S. business, Wal-Mart expects first-quarter revenue at stores open at least a year, a measure of a retailer's health, to be unchanged from a year ago. The pace has slowed in recent quarters, and some analysts believe the forecast could be too optimistic.
For the year, Wal-Mart expects earnings of between $5.20 and $5.40 per share, while analysts expect $5.38 per share.
Despite the subdued forecast, investors were bracing for a weaker report after Bloomberg published a story Friday that leaked an email from an executive characterizing the first two weeks of February as "a total disaster." Shares fell that day, but investors appeared to be relieved that Wal-Mart's outlook wasn't worse. Shares rose about 1 percent, or $1.05 per share, on Thursday to close at $70.26.
