Stimulus Program Is Working To Lift Spending, Study Says

Study indictes that stimulus package are propping up the economy by boosting consumers spending in nondurable big-ticket items. Estimated increase in GDP caused by category will be ~0.8%... The government's economic-stimulus payments are being spent at "significant rates" and should boost consumer spending substantially into the current quarter, a pair of professors found in a preliminary study of the program's effects. The typical family increased its spending on food, drug products and other daily merchandise by 3.5% when the rebates arrived relative to a family that hadn't received its rebate yet, the study found. The government started sending the payments at the end of April; checks totaling more than $90 billion have gone out so far. The study, by professors Jonathan Parker at Northwestern University's Kellogg School of Management and Christian Broda at the University of Chicago's Graduate School of Business, is the first to calculate effects of the 2008 stimulus program. MORE COVERAGE • Read the full study (PDF) A key piece of consumer spending -- nondurable consumption, which excludes big-ticket items such as dishwashers and cars -- will be boosted by 4.1% in the current quarter because of the stimulus, they estimate. The category accounts for about a fifth of gross domestic product. They estimate that demand for nondurable spending rose by 2.4% in the second quarter as a direct result of the stimulus payments. The average family spent about 20% of its rebate in the first month after receipt, a higher spending rate than with the 2001 tax rebate that appears to have helped to end the recession that year, the study found. Low-income households increased their spending at almost double the rate of the average household. The authors used data collected on consumer purchases from ACNielsen, which tracks actual spending behavior, along with surveys of those consumers. The scope of the survey -- comprising more than 30,000 households -- prevented the authors from drawing conclusions on durable-goods spending, because such goods are purchased less regularly. But survey responses found that most consumers reported spending their rebates on those big-ticket items and on services, rather than on clothing and groceries. The $168 billion economic-stimulus program, featuring more than $100 billion in direct payments to taxpayers, cleared Congress in February with strong bipartisan support against worries that the economy would stumble from the housing and financial crises. Even with consumer confidence at very low levels, strong data on retail sales in the second quarter suggested the rebate checks were propping up the economy. The government is expected to report Thursday that the overall economy grew at an annual rate of more than 2% in the second quarter. "The rebates are maintaining retail sales and spending while people are being pinched on other fronts," Mr. Parker said in an interview.