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Inflation Dilutes Rebate Impact

Sep 1, 2008

While acknowledging that the government's rebate checks intended to stimulate the economy have helped significantly, the National Retail Federation also told a congressional hearing that much of the money has been diverted by high gasoline and grocery prices, and consumer spending would still benefit from additional stimulus measures.

"Results are better than they would have been if Congress had not enacted the tax rebates," said NRF VP and tax counsel, Rachelle Bernstein. "Tax rebate checks are providing some stimulus, but consumer spending remains subdued because of the stresses of declining home values, escalating fuel and food costs, increasing unemployment and weak financial markets. Consumers are concentrating their spending on the essentials, are more concerned than ever with pricing, and are shopping more online so they can more easily make price comparisons and save money on gas," she pointed out.

While sales of electronics, appliances and clothing have increased since the rebates started going out, soaring prices for gasoline and groceries that were not anticipated at the beginning of the year mean consumers have used more of their rebate money on essentials, rather than consumer goods that would have had a broader impact on the economy. "Based on the economic information that is available, we believe that a compelling case can be made for providing additional economic stimulus legislation," Bernstein said.

"If Congress does act on a second economic stimulus package, we believe it should once again include relief for the consumer. Since consumer spending is the largest contributor to GDP, it is difficult to foresee an improvement in overall economic growth until consumer spending improves," she said.

Bernstein's comments came in testimony before the House Small Business Committee during a hearing held on, "Economic Stimulus for Small Business: A Look Back and Assessing Need for Additional Relief."

Bernstein cited polling that found consumers who had received their rebate checks had spent 42.9 percent of the money, but that nearly half of the money spent had gone to gasoline, according to 9.7 percent of those polled, or necessities such as groceries, according to 10.4 percent.

The total of those two categories exceeded all other spending categories combined. The next largest category, clothing and apparel, amounted to just 3.3 percent. Consumers said 25.2 percent of the money went to pay off debt and 17.1 percent went into savings. BIGresearch, an Ohio based firm that conducts regular consumer surveys for NRF, conducted the polling.

At the time the survey was conducted, 45.3 percent of taxpayers had received their rebates, which range up to $600 per individual making up to $75,000 a year, and $1,200 for couples making up to $150,000, plus $300 per child for families.

Rebate payments started going out the last week of April, and sales of general retail merchandise, excluding automobiles, gas stations and restaurants, showed a month to month increase of 0.6 percent in April and 0.9 percent for May. Yet June's numbers were up just 0.2 percent after consumers said they were shifting plans for their rebate money from discretionary items to necessities.

Another poll conducted for NRF by BIGresearch found that 20 percent of consumers had set aside some of their rebate money to spend on back to school supplies, suggesting that money that was saved might still be spent on consumer merchandise later in the year.

Topic: Wholesale News

Related Articles: National Retail Federation 

Article ID: 731

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