Experts: Tax Refund Delay May Decrease Consumer Spending

Wednesday, 20 Feb 2013 07:59 AM

By Michael Kling

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Tax refunds are flowing more slowly than they were last year and could be cause for concern, some experts worry.

Tax refunds are $26 billion behind last year’s rate, which could crimp consumer spending in the first quarter, experts told CNBC.

Congressional wrangling over how to avoid the fiscal cliff stopped the IRS from preparing tax tables on time and delayed its ability to start accepting returns until Jan. 30.

Forbes Columnist:
‘Who the Hell Cleared This?’

Tom Porcelli, chief U.S. economist at RBC Capital Markets, told CNBC the delay could push down consumer spending by 0.2 percent in the first quarter.

That’s not the only problem facing consumer spending.

An increase of the payroll tax, which returned to its previous level of 6.2 percent this year from 4.2 percent, is also crimping consumer spending. Plus, gas prices have increased.

Michael Englund, an economist with Action Economics, predicts that consumer spending will not increase in the first quarter because of all those factors combined, according to CNBC.

On the other hand, core retail sales for January increased a 0.7 percent, which points to a 3 percent increase in consumer spending in the first quarter, said Jim O’Sullivan of High Frequency Economics, CNBC reported.

Englund countered that consumers cut back spending toward the end of January when, seeing their monthly paychecks, they realized the payroll tax increase left them with less spending money. The payroll tax, he said, would have a larger impact in the coming months.

Credit Suisse analysts predicted that tax refund delays could push back $18 billion of consumer spending from the first quarter to the second quarter, according to Twice.com, a news website.

In a research note, Credit Suisse said the delay, combined with the higher payroll tax, will create a “double whammy” for consumer spending in late January through the first quarter, the website reported.

Unlike the payroll tax, the delay in refunds might impact big-ticket spending as well, as consumers tend to use those checks for one-time splurges, Credit Suisse said. Big-ticket retailers like electronics retailer hhgregg and Sears would be the most impacted.

“We believe this makes [the first quarter] an even more difficult quarter for our retailers, while setting up [the second quarter] for potential upside from a top-line perspective,” the company’s retail analysts stated in a research note, according to Twice.com.

Forbes Columnist: ‘Who the Hell Cleared This?’

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