Expanded Child Tax Credit Gives Retailers Hope Amid COVID Concerns

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With continuing labor shortages, tangled supply chains, increased costs and renewed concerns about COVID-19 because of the Delta variant, it would be easy to assume that retailers’ optimism about the second half of the year is misplaced. But pent-up consumer savings and the new expanded child tax credit have some experts still excited about a retail rebound.

Though not as large as the pandemic-era stimulus payments, the IRS will deliver the $250 or $300 checks on the 15th of each month between July and December, with the second half of the credit to be paid out when families file their taxes. The second payment of the expanded child tax credit will be delivered Friday, as Aug. 15 falls on a Sunday.

Steve Sadove, senior advisor for Mastercard and former CEO of Saks Inc., told PYMNTS that as soon as the child tax credit payment hit bank accounts July 15, retailers saw a bump in consumer spending, and he expects similar patterns to emerge over the next several months as subsequent payments are delivered.

See more: The Child Tax Credit Is Rolling Out: How It Will Be Spent, What’s Next

“All indications are that the consumer is very healthy and the child tax credit is only going help it even more as you go out over the next several months,” Sadove said.

Over the past several weeks, many retail executives have lauded the child tax credit, including those at Carter’s, Mattel, Aaron’s, Hanesbrands and Goodyear Tire. Hasbro CEO Brian Goldner, when asked by an analyst about the impact of the child tax credit, declined to comment specifically on the stimulus payment but said the company is seeing that “consumers are very engaged in the products and categories that we’re offering.”

Related: Carter’s Says Enhanced Child Tax Credit Gives Children’s Apparel A Boost

Sadove said, though, that 10.9 percent growth in the overall consumer economy is attributable to more than just the expanded child tax credit. “Underlying growth is really quite strong, and it’s been building over the last several months,” he told PYMNTS. “So this is just a continuation of a trend. … It’s about as positive and as healthy a consumer as I’ve seen in a long time.”

To be sure, the COVID-19 variant is causing a resurgence of uncertainty and anxiety among consumers who just weeks ago were ready to return to a pre-pandemic life en masse, which could mar spending in the second half of the year. A survey fielded by First Insight last week found that 56 percent of consumers plan to cut back on their spending, an 8 percent increase from last month, and 56 percent say they aren’t comfortable working with a sales associate, up 30 percent from a month prior.

Back-To-School Boost

The first two expanded child tax credit payments come at a time when consumers are gearing up for a much-anticipated return to the classroom and college campuses. Mastercard projected in June that retail sales would rise by nearly 6 percent year over year between July 15 and Sept. 6, and almost 7 percent compared to 2019. Apparel is expected to see a 79 percent year-over-year jump and 11 percent bump compared to two years ago, while electronics are expected to see a 13 percent and 10 percent rise compared to 2020 and 2019, respectively.

Sadove said trying to match back-to-school spending expectations to reality in mid-August “would be like projecting the baseball season just before the all-star break,” but added that every indication points to a very good back-to-school season. Retailers are offering fewer promotions because of tight supply chains, but considering at July’s 10.9 percent growth, Sadove said “everything would bode well for hitting the back-to-school forecast that’s on the table.”

Read: Newly Digitized Retailers Could Easily Pivot To New COVID Restrictions

And despite renewed concerns about the coronavirus, Sadove told PYMNTS that both retailers and consumers have grown much more accustomed to eCommerce and omnichannel options over the past 18 months, suggesting that consumer spending may not drop off.

“We’ll see how this all plays out relative to how long and where the Delta (variant) goes and whether it slows down, but I would anticipate that it will not affect the overall trend that we’re seeing,” he said.