By Lisa Johnston
New products on display at the American International Toy Fair, held in N
New York – A delay in federal income tax refunds could take a toll on retailers in the first quarter, but may boost consumer spending in the spring.
According to financial services firm Credit Suisse, the delay in individual income tax refunds could defer $18 billion of consumer spending from the first quarter to the second quarter.
The deferred refunds are attributable to fiscal-cliff wrangling which delayed the IRS’s completion of new forms, instructions and computer programming and led to the late Jan. 30 start to tax season.
Credit Suisse said the delay, compounded by the reinstatement of the payroll tax, will create a “double whammy” for consumer spending in late January through the first quarter. The delay will have the biggest impact on big-ticket hardline retailers like hhgregg and Sears, which also face stiff year-over-year comparisons due to the benefit of an early spring in 2012.
Unlike the impact of the payroll tax, which is primarily on lower-income consumers, the delay in refunds may impact big-ticket spending as well, as consumers tend to use those checks for one-time splurges, Credit Suisse said.
“We believe this makes Q1 an even more difficult quarter for our retailers, while setting up Q2 for potential upside from a top-line perspective,” the company’s retail analysts observed in a research note.
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