It wasn’t just the weather that negatively impacted retail sales in January.
It was also the IRS:
In addition to weather related issues, retail sales for the month of January could have been slightly impacted by delays in federal tax refunds. The IRS released a statement on January 20 stating that the agency would not be able to begin processing most returns until February 14 due to the need to update their infrastructure for the latest tax cut extensions passed by Congress in December. Ironically, while the IRS delayed the processing of returns by over a month, tax payers only have a three day reprieve-until April 18th, to file their returns. While it is difficult to gauge what the exact impact was from the delay in tax refunds, we do have enough historical IRS data to put a framework around the numbers.
The IRS has published in the past a week by week tally of tax returns received and total refunds sent out. The last full data set that we have is from 2007 and 2008 (for tax years 2006 and 2007) and in those years approximately 14M to 15M tax payers filed before February 2 with 12 to 13M refunds distributed by the IRS during that period. Hence, around 85% of “early filers” for the month of January received refunds and the average refund was approximately $3,000. The cumulative dollar amount of refunds paid out by the IRS in the first month of the year was approximately $39B. Assuming that the entire refund was spent in the same month, the delayed refunds would account for almost 10% of total retail sales in January ($382B).
It is not likely however that the delayed returns had that large of an impact for two reasons: One, according to a TurboTax study done in 2009, 46% of “early filers” use some portion of their refund to pay down debt. Two, there is no way of knowing whether the remainder of the refund was spent within the same month. Moreover, any delay should eventually be recouped in later months. What we can say is that this delay probably had a minor impact, and anecdotal evidence from corporate management teams, especially in large ticket durable goods industries, points to at least a minor impact. This makes sense because according to the 2009 TurboTax survey previously cited; 82% of early filers receive refunds-if they know they are going to receive a refund, it is possible they are filing early to make a specific debt payment or to make a significantly large purchase.
If we assume that half of the $39B in early refunds distributed in 2006 went towards debt and the other half was spent in the same month, the impact on retail sales is even less, approximately 4%. Either way, the delayed returns should only have a temporary impact and forecasters may have to adjust their estimates for February accordingly given the two week delay. As far as we know, there has not been a comparable period where the IRS has had to delay processing tax returns. In any event, the IRS delays are temporary, so we should see a sizeable snapback in retail sales within the next couple of months.