Tax refunds are running $26 billion behind where they were this time last year and some economists say it's another reason to worry about consumer spending in the first quarter.
Refunds are late because the "fiscal cliff" debate delayed the Internal Revenue Service's ability to prepare the appropriate tables and accept returns until January 30. RBC Economist Tom Porcelli forecasts that the delay could shave 0.2% off of consumer spending in the quarter.
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If that were the whole story, it wouldn't be a big deal. Late refunds should arrive and the lost consumer spending made up.
But there's more.
First, refunds are likely to be lower this year in any event due to tax law changes. Second, consumers are also dealing with higher gas prices and restored payroll taxes, which could sharply curtail spending.
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Economist Michael Englund of Action Economics has forecast zero consumer spending growth in the first quarter because of all these factors, including late refunds.
On the other side of the story are those economists who grew more optimistic about consumer spending because of the January retail sales report this week.
The numbers beat expectations in the critical area of core retails sales. which excludes autos, gasoline and building materials. Economists follow this measure closely because it feeds directly into gross domestic product. (The government gets the excluded items from other sources.) The core measure rose 0.7% and means consumer spending is rising at a healthy 3 percent in the first quarter, according to Jim O'Sullivan at High Frequency Economics. O'Sullivan and others were surprised by the number and believe that the economy may have escaped the worst of the fallout from the tax hikes and low refunds. He sees GDP accelerating to 2.3% in this quarter.
Not so fast, argues Englund. He thinks that the January retail numbers will be revised lower because sales weakened in the last week of the month as workers began to realize that the payroll tax cuts expired when they received their end-of-month paychecks. Englund says the retail report typically does a poor job of picking up sales in the last week. In any event, Englund says January is not the decisive month. He says consumers' adjustment to the payroll tax hike will take place over many months, not just one. Retail spending will be deeply negative in February and March, he argues.
Who is right?
It seems impossible to send out refunds late and hike taxes on such a broad swath of the population without it hurting retail sales, at least in the first quarter. Bracing for lower numbers in the months ahead seems the better bet.
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By CNBC's Steve Liesman; Follow him on Twitter: @steveliesman