Washington to the Rescue?

Washington to the Rescue?

Since many economists are operating under the assumption (subscription required) that a recession is now a foregone conclusion, both chambers of Congress have agreed to an economic stimulus package that they hope will keep the economy above water. The $168 billion deal, which was agreed to last night, will dole out rebate checks of up to $600 for individuals or $1,200 for married couples. Lawmakers also agreed to extend smaller-sized rebates to Social Security recipients and military veterans receiving disability payments.

Businesses will also be allowed to write off capital equipment purchases more quickly if purchases are made this year, while small businesses will have more room to write off expenses. Even the housing market got attention in the bill, as legislators agreed to raise loan limits for Fannie, Freddie and the FHA. (Check here for questions regarding the efficacy of the higher limits for these government sponsored enterprises).

Ultimately, the idea here is to get money into the hands of the consumer as the primary means to avert recession. Data released this week indicate consumer spending has slowed and mounting debt problems could weigh on consumers even more. The ICSC's report on chain store sales showed a meager 0.5 percent increase on a year-over-year basis last month-the weakest January gain in 38 years and the slowest rate of growth (after adjusting for Easter distortions) since 2002.

Obviously one month does not a trend make, and some part of the sluggish reading may have been caused by weather and calendar effects, but it does merit close attention going forward. Still, the reliability of consumer spending, and for that matter consumer confidence, to predict a recession is suspect. Check out this article for a rundown of the murky relationship between consumers and the broader economy.

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