Tax refunds may send false signal on consumer spending

Early last year when the Bush administration pushed through tax refunds, consumer spending ticked up as the money made its way into the retail markets. But the spending spree was short-lived and retail sales dropped as the recession took hold.

The same principles, and problems, may be facing the Obama administration's new refund program. Consumer spending may begin to look better, but the activity could be gone in a month. And shoppers may desert stores the way that they did during the last holiday season, leaving weak retailers even weaker.

According to The Wall Street Journal, "Internal Revenue Service data show that through April 3, total individual refunds were up by about 15 percent, to $210 billion, from $183 billion at the same point last year. That extra money in consumers' pockets -- coupled with a drop in gasoline prices -- has helped keep consumer spending surprisingly healthy in recent weeks, economists say."

If the assessment is accurate, large retailers that have been facing sharp drops in same-store sales could be back on the ropes in May. At the top of that list are Nordstrom (JWN) and Dillard's (DDS), which both suffered drops of over 13 percent last month.

Trouble at retailers means trouble with unemployment. The larger retail chains employ tens of thousand of people. Another large fall-off in sales mean more lay-offs.

At least some of the people who will be out of work got refund checks.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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