Analyst: Tax rebate will trigger big boost in retail sales

Federal tax rebates will give retail sales a significant and much needed boost in the next two quarters, predicts TNS Retail Forward, but that forecast excludes autos and gasoline.

The market research firm, based in Columbus, Ohio, says in an April 28 statement that retail sales growth will improve by as much as 3 percentage points in the third quarter and half that in the second quarter.    

TNS Retail Forward estimates that households will spend as much as $42 billion—of the $105.7 billion tax rebate total—at stores from May through the end of the year, with most of the incremental retail spending occurring in the third quarter.  Year-to-year growth for the second quarter growth is forecast at 3.5 percent with the tax rebates instead of 2.0 percent without the rebate impact.  Third quarter growth is forecast at 6.0 percent instead of 3.0 percent without the tax rebate impact.  The sales forecast is of retail sales excluding autos and gasoline as reported by the U.S. Department of Commerce.

“Retailers and suppliers should maximize their efforts to benefit from the tax rebates because growth prospects otherwise look bleak through the end of the year,” commented Frank Badillo, senior economist at TNS Retail Forward.  “Growth remains threatened by lingering fallout from the credit crunch, which is dampening investment and raising job insecurity.  Also weighing heavily on growth is persisting inflation—largely in food and fuel—that is taking a toll worldwide and complicating efforts by central bankers to reignite growth.”

How much and where U.S. shoppers spend in the coming months will vary by income segment.  TNS Retail Forward ShopperScape research indicates that down-market to mid-market shoppers, who are most likely to receive and spend a tax rebate, will remain focused on value and everyday purchases.  Mid-to-up-market households will be more inclined to make big ticket purchases, which will likely benefit sales of consumer electronics and some home furnishings.  TNS Retail Forward expects home goods sector sales will likely remain weak while discount department stores, supercenters, warehouse clubs and other value-focused retailers will fare best.  The outlook will be mixed for soft goods retailers, with some improving while others languish.

A combined 41 percent of ShopperScape survey respondents confirmed they intend to use their rebate check for either everyday living expenses or to make a special purchase.  More households are expected to use the rebate to pay down debts, among other things.

“While the impact of the tax rebates is significant, it is unlikely that these rebates will lead to a sustained economic rebound,” said Badillo.

TNS Retail Forward, Inc. is a global management consulting and market research firm specializing in retail intelligence and strategies.  

The TNS Retail Forward ShopperScape survey is conducted monthly with a sample of 4,000 U.S. primary household shoppers.  The survey is conducted online among a nationally representative sample of households.