NEW YORK, NY--(Marketwire - Feb 5, 2013) - Rising unemployment and drop in income level following the financial crisis of 2009 had hurt demand for tax preparation services in the last few years. However, the labor market is showing signs of improvement. This is a good sign for companies such as H&R Block Inc. and Intuit Inc. The fortunes of the tax services and software industry rely heavily upon the labor market. If more people are employed, there will be more tax filings. The financial crisis of 2009 led to a sharp rise in U.S. unemployment rate and this had a significant impact on the industry. Also, declining income level hurt the tax services and software industry. In addition, the weak economic environment meant that a number of individuals opted to do their own taxes to save money.
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Following the tough last few years, the outlook for the tax services and software industry has improved thanks mainly to the improving labor market. Recent data from the labor market has shown signs of improvement. Although there is still some way before the labor market completely recovers, the trend in the recent past has been encouraging. The unemployment rate has fallen below 8%. Earlier this week, Automatic Data Processing reported 192,000 job additions in the private sector in the month of January. For the week ended January 19, initial jobless claims fell to 330,000, a five-year low.
The labor market is expected to continue to improve as the Federal Reserve, in its monetary policy statement in September last year, announced its most aggressive bond buying program. The Fed said that it will buy $40 billion in mortgage-backed securities each month until there is a sustained recovery in the labor market. Earlier this week, the Fed said that it plans to continue with its bond buying program.
Back in November, Intuit reported strong results for its first quarter ended October 31, 2012. The results reflect the improving environment for tax services and software industry. Intuit's revenue for the quarter rose 12% to $647 million, with Small Business Group revenue rising 18%. The company also reiterated its guidance for the full fiscal year. Intuit expects full-year revenue to be between $4.55 billion and $4.65 billion, which represent a growth of 10% to 12%. The company is set to announce its next financial readings on February 21st.
Back in December, H&R Block also posted decent results for its fiscal second quarter ended October 31, 2012. The company's total revenue for the quarter rose 6% to $137 million. The company also narrowed its losses in the second quarter of fiscal 2013. Bill Cobb, President and CEO of H&R Block, last month said that he is very pleased with the improvement in the second quarter results, which reflect savings from the company's cost reduction initiatives and strong tax season in Australia. Cobb added that the U.S. tax season is right around the corner and he believes the company is on pace to deliver significant earnings and margin expansion in 2013.
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