The holiday shopping season is in full swing, and we are already getting a flurry of data and news reports about how much Americans are spending this year. From a retailer's perspective, this is the biggest quarter of the year for consumer spending and retail sales, and the early returns indicate a solid increase of 4-5 percent when compared with the same quarter a year ago.
This is welcome news for most retailers as well as plastics processors and other manufacturers because inventories of most products will get cleared out without the need for heavy discounting. There will always be a few stories of products that either sold out more quickly than expected or languished on store shelves, but I expect that overall profit margins this quarter for the retail sector will be healthy.
But whether you and your customers made money at the end of this year or not, it is now time to start planning for 2019. The gain in consumer spending this quarter is a good indication of a vibrant consumer sector heading into next year, but it is always prudent to assess the probable trajectories of the relevant trends in the macroeconomic data and identify any one-time factors that could affect your plans.
One notable example of a one-time factor next year is that tax refunds are expected to hit an all-time high in the first half of 2019. This will result in a sharp rise in demand for many types of products in the first two quarters. This surge will pull demand for many goods and services forward, which means there will be a noticeable deceleration in demand for these same goods and services in the third quarter.
It turns out that most American households have more taxes taken out of their paychecks than is required in anticipation of a refund the following year. Many workers view this as a forced savings program that results in a pleasant windfall in the coming spring. When there are substantial changes to the tax laws like the reduction in tax rates we had this year, research suggests these workers do not fully adjust their rates of withholding downward.
This means there is even more soon-to-be-refunded money being withheld than ever before. Estimates suggest total tax refunds in 2019 will exceed last year's total of $235 billion by as much as 25 percent, which works out to about $60 billion of extra windfall this year.