As it turns out, federal windfalls aren't going far
CHICAGO - Many Americans allowed themselves to fantasize about large-screen TVs, European vacations, and other luxuries when they learned of the federal rebates they'd be getting this spring and early summer.
Or maybe they'd pay off a credit card or set the rebate aside for a big purchase in the future, notwithstanding Washington's intentions that they pump it immediately into the flagging economy.
But reality has interfered, in the form of ever-climbing food bills and $4-a-gallon gasoline.
Day-to-day living costs have sopped up the checks for many early recipients and spoiled their rebate fantasies.
Government figures released Friday showed consumer spending inched up just 0.2 percent in April, despite widespread anticipation of the stimulus payments sent out starting late in the month.
Based on a small but broadly diverse group of consumers who tracked their rebate spending in detail for the Associated Press, there was no mass rush to the malls for shopping sprees after the payments started showing up in bank accounts in significant numbers in May. The greater economic ramifications may not be seen for months.
Brandi Dobbins, 26, and her fiance each got their $600 checks just before their May wedding on the coast of Maine. The combined amount was spent almost instantly when their caterer called and, after asking "Are you sitting down?", informed her that due to food inflation their bill for the wedding was jumping from $46.50 per guest to $59 - virtually the entire $1,200. "In the economic grand scheme of things, I'm not quite sure that's what they intended us to spend our money on - inflation - but that's where ours went," Dobbins said.
All told, 131 million households are to receive a total of $110 billion by the time the last payments are doled out in mid-July. What people do with them will help shape the direction of the sputtering economy.
The last time Washington undertook such a program to combat an economic slowdown, taxpayers got rebates of $300 or $600 in the summer and early fall of 2001. The eight-month recession was over by November, but it's not clear how much the payouts helped. The amount that people actually spent - excluding saving money, investing, or paying down debt - was lower than many economists expected, although estimates vary so widely an exact total is hard to peg.
This year's program provides more money, aimed at delivering a bigger shot of adrenaline to the economy by inducing people to buy items they didn't otherwise have the cash for.
Based on economists' preliminary assessments, and echoed by the AP sample group of more than two dozen people, Americans are not hesitating to spend the money - but more for essentials than was anticipated. It's easy to understand why: Gas prices are up more than 30 percent since the rebate check amounts were first announced, and food prices are projected to increase 5 percent or more in 2008.
Joseph LaVorgna, chief US economist at Deutsche Bank, thinks at least half the rebate money may go toward energy costs alone.
Diane Swonk, chief economist for Mesirow Financial in Chicago, also estimates that consumers will spend more than half of the rebates - but much of it on the higher cost of living, citing evidence of a "very stressed consumer."
That would be dramatically higher than what they signaled in an Associated Press-Ipsos poll in February, when only 19 percent of respondents said they would spend their rebates. Some 45 percent said they planned to pay off bills, 32 percent said they would save it or invest it, and 4 percent said they would donate it to charity. Consumers in the past have tended to spend significantly more than they told pollsters they thought they would.
