E-FILING BOOSTS FIRST-QUARTER
CONSUMER SPENDING
According to economists, faster processing of tax returns, fueled by the growing popularity of electronic filing of income taxes, has boosted consumer spending during the just-ended first quarter. This is something of a reversal of trend, and may actually cause a slowing of consumer spending during the second quarter.
Tracking consumer spending is important, because, believe it or not, we the consumer, and our spending, accounts for about two-thirds of the total Gross Domestic Product. Currently, of course, the Fed is worried that the Gross Domestic Product is increasing too fast, so calculating how the expansion of e-filing is playing into consumer spending is more than just an academic exercise.
The latest figures released by the Internal Revenue Service for the period ended March 17th show that processed returns have risen by 8.6% this year, compared to last year. The big boost is coming from a 16.5% surge in returns being filed electronically, i.e., via Internet.
What happens is that people get their tax refunds, and in many cases they spend them. Thus, more returns than usual coming through with refunds during the first quarter would tend to boost the first-quarter earnings more than usual, and in turn would also reflect a slowing of tax refunds and therefore of consumer spending during the second quarter. Do you have all that?
Economists contend that the shift is being reflected in stronger first-quarter retail sales. Obviously, one of the easier ways to track what the consumer is doing. Apparently we'll look for some artificial, if you want to call it that, strength from consumer spending during the first quarter, which will even out during the second quarter. Analysts agree that while the pattern of refunds and spending has shifted earlier in the tax season due to e-filing, over the long run it probably will not effect our overall economic picture. Translation: The economy is strong, it is stronger than the experts have forecasted and expected, and that will continue to make the Fed nervous.
Speaking of the Fed, there's not another meeting until mid-May, the 16th to be specific. But I am among a growing number of people that feel that there are some signs that the economy is slowing, at least around the edges, and the Fed is probably nearing the end of its rate hike increases. Oil prices have probably topped out, at least for the present, thus, the inflationary picture should remain fairly calm. Given any evidence at all that the economy is really slowing significantly, the Fed will certainly take the prudent course and stop the quarter-point increases at every meeting.
Some experts even think that the Fed is "banking" the increases right now so that when the economy does turn softer in the fall, they will have some interest rates cuts to give back, accomplishing the much talked about but hard to achieve soft landing. As usual, only time will tell.
In the meantime, the economy really does keep sailing along. The economic picture was so perfect last year, that is understandable that it isn't quite as good this year. By historical standards, we still are enjoying exceptional rates of growth, along with low inflation, low interest rates, and low unemployment. Admittedly, while this combination isn't quite as superb as it was last year, it is still pretty darn good. At least for the foreseeable future, one would think that economic trends will continue as they are. And, by the way, in an election year that is not an unimportant point, because whether we like to believe it or not, people do vote their pocketbook, therefore the still very good economy came to favor the incumbent party, or the Democrats, as we move to the national election in the fall. It is an odd or even undeserved dividend for this administration, which had almost nothing to do with the economy's current success, except for the fact that they didn't damage it, and had the good sense to let the Fed and the Treasury run things.
(Tom Butenhoff is a First Vice President with J. E.
Liss & Company in Milwaukee. The views are his and not necessarily
those of Liss Financial Services or the Job Connection/Hiring
Network.)