Businessweek Archives

Those tax rebate checks


Reporting on consumer stocks in the last couple days (for this), I encountered a surprising amount of optimism about consumer spending. That was especially surprising given the recent run-up in oil prices. And it helps explain why many consumer discretionary stocks have done well recently.

The main reason for the happy thoughts about retailers, restaurants and other companies that make money off the American consumer? Those tax rebate checks, courtesy the federal government’s $150-billion economic stimulus plan, which many Americans are receiving in the mail right now.

Pessimists think the stimulus will provide only a temporary benefit to an economy mired in recession.

Douglas McIntyre says:

“Most of the money handed out by the government is likely to be spent on high food and fuel prices. That will hardly be an incentive for people to buy a new Cadillac or build a swimming pool.”

But Georges Yared of Yared Investment Research told me the other day that he’s optimistic. He figures most consumers have already adjusted – however painfully – to higher gas prices. “As Americans, we are shoppers,” he said. “If you hand me $600, I’m probably going to spend it on something.”

Extra consumer spending causes “a major chain reaction” that actually magnifies the effects of the stimulus, Yared says. Retailers re-stock inventory and, further down the chain, factories and shippers get busier.

Other analysts have looked at previous, smaller stimulus packages and say it helped the restaurant industry, as Americans used extra cash to a night out on the town.

Will Americans spend or save their rebate checks? This site – “How I Spent My Stimulus” – is an amusing attempt to answer that question.

I think many Americans will spend their stimulus checks on at least something extra, and that might provide a boost to consumer stocks or at least their earnings figures this quarter. But the real question is whether this is just a temporary blip or the beginning of a recovery for this beaten-down sector.


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