Some low-income shoppers will see their tax refunds delayed until late February this year, likely disrupting sales at discounters and value-focused consumables retailers. The delay isn’t as impactful as last year, but should be noted by suppliers and retailers which focus on this shopper.
Taxpayers who claim the Earned Income Tax Credit or the Child Tax Credit may see their refunds delayed until February 27 according to the IRS. In aggregate, the year-to-year level of refunds is up 2.0% through mid-February, but that’s on top of a delay last year which caused refunds to plummet 70% in the first six weeks of the year.
The segment affected by the delay is probably most important. Low-income households tend to use the Earned Income Tax Credit more than other households and are also most likely to immediately use their refunds for everyday expenses. This means the impact could be quite pronounced for convenience stores, Dollar General, Family Dollar, Walmart, and Aldi. Higher gasoline prices, food inflation, and rising healthcare costs to start the year is also another reason to expect these and other shoppers to be tight fisted in January and February relative to this past holiday.
The good news is that in late February tax refund checks will start to get back on schedule and tax cuts will begin trickling into most shoppers’ paychecks. An earlier Easter this year (April 1st) will also pull more sales into March. Thus, growth will gain stronger traction in March, driving growth in the calendar first quarter to a solid pace. (KRiQ clients can access quarterly and annual forecasts in this workbook)
Doug Hermanson, Principal Economist