IRS data showing tax refunds 10% lower than last year is one more reason to expect consumer spending to slow in an economy where recession risk is high.
The latest IRS data shows average tax refunds down roughly 10% versus last year and companies including Walmart have recently commented on the link to consumer spending.
The average tax refund is 10.4% lower than last year according to the latest Internal Revenue Service data, and inflation is taking more of those dollars.Consumers have helped keep the economy humming with higher wages, surplus savings and pandemic stimulus among the sources of increased cash and spending. But as pandemic-related tailwinds run their course, another example becoming a thing of the recent past is bigger than typical tax refunds.
"We're definitely more cautious on the consumer," said Jack Kleinhenz, chief economist for the National Retail Federation. "The research shows spending doesn't happen immediately, it continues on for quite a bit of time, so the lower tax refund impacts consumer spending through probably the first half of the year," Kleinhenz said.
"Payrolls are decelerating, if not declining, and people are impacted by the rate of inflation. Even though it is falling it is still causing heartburn," Kleinhenz said. GDP and spending in Q2 could come in "OK, but lower," Kleinhenz said, and consumers still be the driver, "but as we get later into the year, this is when the deceleration in the economy will be most apparent."
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