Retailers Tell Congress Rebates Have Helped But Stimulus Effect Has Been Diluted by Gas and Grocery Prices

Business Wire, July 24, 2008

WASHINGTON -- The National Retail Federation told a congressional hearing today that rebate checks intended to stimulate the economy have helped significantly, but 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," NRF Vice President and Tax Counsel Rachelle Bernstein said. "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 on line so they can more easily make price comparisons and save money on gas."

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."

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

Bernstein cited polling conducted June 3-10 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 (9.7 percent) or necessities such as groceries (10.4 percent). The total of those two categories exceeded all other spending categories combined, with the next-largest category - clothing and apparel - amounting to only 3.3 percent. Consumers said 25.2 percent of the money went to pay off debt and 17.1 percent went into savings. The polling was conducted by BIGresearch, an Ohio-based firm that conducts regular consumer surveys for NRF.

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. But June's numbers were up only 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 this month 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.

The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail companies, more than 25 million employees - about one in five American workers - and 2007 sales of $4.5 trillion. As the industry umbrella group, NRF also represents over 100 state, national and international retail associations. www.nrf.com