The Early Rebates Are in and…

The Early Rebates Are in and…

Problems ranging from the housing market collapse, multiple credit market crises, high energy prices (recent declines, notwithstanding) and declining payrolls are lingering reminders of a soft economy. Whether we're in a recession or not, conditions are tough but certainly could be much worse. For example, newly-released data showed real GDP increasing 1.9 percent during the second quarter. Had it not been for the unexpectedly large drawdown in business inventories, growth would have been even stronger. Trade offered a big boost, as exports surged and imports declined, reflecting the much-needed fix export demand is providing to the U.S. economy at this time.

Another headline from Thursday morning's GDP release was more evidence of the effect of federal tax rebates. Consumer spending nearly doubled its contribution to overall economic growth compared to the first quarter, even as consumers wrestled with $4+ gas prices and a higher food bill. While evidence of the impacts arising from the 2001 tax rebate checks took years in some cases to be compiled, researchers have already begun to measure the initial effects of the 2008 stimulus. Thus far, approximately $90 billion in payments have gone out and according to the report (subscription required), the average family spent about 20 percent of their rebate within a month of receiving it. Surprisingly, recipients didn't appear to pre-spend their stimulus check as the authors found no change in spending patterns in weeks prior to the disbursement of the funds. "Supercenter"-type stores have been the biggest beneficiaries of the additional spending activity.

Of course, research suggests the effects of the rebate checks will soon begin to fade, as 2/3 of payments from the 2001 stimulus were found to have been spent within five months. With that in mind, some in Congress are proposing yet another round of assistance; however, this should not come as a surprising development since there happens to be an election a few months away.

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