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Retail sales key to U.S. recovery

Shoppers walk down a street in the Soho

Shoppers walk down a street in the Soho Credit: Shoppers walk down a street in the Soho. (Getty Images)

Have Americans cut down on their shopping thanks to the expiration of the 2% payroll tax cut at the start of 2013?

We will find out the answer to that question when the February retail sales report comes out Wednesday.

Despite an increase in the payroll tax, retail sales rose 0.1% in January, but economists warn that consumers might not know that their paychecks shrank by a few hundred dollars. As such, we will only see the true effects of the payroll tax hike this month.

Another factor that might hurt last month's retail sales is that the annual tax refund, which is usually handed out in early February, was delayed to the end of March.

Nonetheless, economists expect a 0.5% gain in February retail sales, which is good news since consumer spending accounts for over two-thirds of the U.S. economy.

But don't celebrate too quickly - retailers like Limited Brands, the parent company of Victoria's Secret and Bath and Body Works, said that they had to offer steep discounts in February to lure shoppers in.

One more economic data point to look out for this week is the February Consumer Price Index, an important gauge of inflation that's out Friday.

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