Stimulus Checks Making Economic Waves

Payments Give Huge Jolt To After-Tax Incomes And Consumer Spending But Boost May Not Last

(CBS/AP)  The millions of economic stimulus payments gave a massive jolt to household finances in May, sending after-tax incomes up by the largest amount in 33 years.

The payments helped boost consumer spending by the largest amount in six months.

The Commerce Department reported that disposable incomes, the amount left after paying taxes, surged by 5.7 percent last month. It was the biggest increase since May 1975, reflecting $48.1 billion in rebate payments made last month. The surge in incomes helped boost consumer spending by 0.8 percent, the biggest gain since last November.

The administration is hoping that the $106.7 billion in stimulus payments being made this year to 130 million households will be enough to offset serious drags on the economy at the moment from a prolonged housing slump, a severe credit crisis and soaring energy bills.

However, economists are worried that the boost from the stimulus checks will be only temporary and once the checks are spent, the risks of the economy falling into a deep recession will increase.

Worries about the economy showed up in turbulent financial markets this week with the Dow Jones industrial average plunging by nearly 360 points on Thursday to the lowest level in almost two years. Investors were worried about the impact soaring energy prices and a slumping financial sector will have on future growth.

The rebate checks are part of a $168 billion package of tax relief for individuals and businesses that Congress passed in February at the urging of the administration in an effort to give the economy a boost and ward off the threat of a deep recession. The payments began on April 28 and are scheduled to be completed by mid-July.

The Bush administration currently is resisting Democratic calls for a second stimulus package even though economists are worried that the effects of the boost will prove temporary at best. They fear the stimulus will fail to prevent a serious slump in the second half of this year as the economy's troubles from housing, a severe credit squeeze and soaring energy prices mount.

For May, overall incomes rose by 1.9 percent after a 0.3 percent rise in April. Part of that increase reflected the portion of the stimulus payments that are going to low-income individuals. But the bigger impact showed up in after-tax incomes, which shot up by 5.7 percent in May after a 0.4 percent rise in the month before, reflecting the bulk of the stimulus payments, which represent a tax break for most households.

The hope is that the stimulus payments will do the trick to bolster consumer spending, which accounts for two-thirds of total economic output.

For May, consumer spending jumped by 0.8 percent, double the 0.4 percent gain in April. Excluding the effect of rising gasoline and other price increases, inflation-adjusted spending rose by 0.4 percent in May, the biggest one-month increase since last August.

A closely watched inflation gauge tied to consumer spending was up 0.4 percent in May but excluding energy and food, the increase was a much smaller 0.1 percent. Over the past 12 months, core inflation excluding food and energy is up 2.1 percent, just above the Federal Reserve's comfort zone.

The Fed earlier this week brought an end to an aggressive string of interest rate cuts designed to protect the economy from toppling into a deep recession, citing increased worries about inflation pressures coming from surging energy prices.

The big increase in after-tax incomes based on the surge in stimulus payments pushed the personal savings rate to 5 percent, the highest level since May 1995. Personal savings represent the amount of after-tax income consumers have left after deducting their spending for the month.

Meanwhile, the Fed was scrambling to prevent a "contagion" from infecting the nation's financial system when it took unprecedented actions to save several Wall Street firms, reports CBS News correspondent Peter King.

Newly released documents show Federal Reserve officials felt an immediate collapse, particularly at Bear Stearns, would mean a contagion, a spread of financial shock that could ruin the financial system and send the country into a recession, King reports. The Fed agreed to back up the $30 billion in JP-Morgan's takeover Bear Stearns, and said it would make emergency loans available to keep other large firms from going under.

[yongamerica]

Who was interviewed for this article. The stupid check couldn''t cover gasoline for my family for a week.

What an obscene Joke! The total amount of refunds payed to the American public didn''t even equal 20% of the tax breaks given to the rich by Bush and his Oil Co.

[barbaram99]

It is sad that America can''t do better.
As a Nation We DON''T
make the things we wear,use,etc.
We used to.
Today WE DON''T.
Go ahead look at what is yer home. There is ye will find made in .MADE IN CHINA om Dell mouse. On my ext TV card, assembled in Taiwan. Yep. I paid top dollar IN 07 so I can watch over the air TV in both formatsI used mine to add to my library. Vista. toldyouso12 there is/was toldyouso21. She made alot of sense to this Mainerin Seattle. We could help our Nation by doing the right thing. I am against war in any form. We have needs here. As Mainer I was taught to clean out our Yard before telling others to. America ye hear. Ye never learnt yer lessson. TIME TO CLEAN HOUSE.

[keithle1]

"..BUT BOOST MAY NOT LAST."

You don''t say, Really.
**********************
popstom1 is excited by the prospect of a third Bush term. McCain really turns him on.

[popstom1]

the one''s that need it don''t get it so f-k all of them

[pvperson]

Neo-cons, Hypocritess, Warmongers.

Goal of the Oppressers. Burn the Consitution.

McSame 08!

[babooph]

Endless propaganda over the "stimulus"-a quick "whitewash" over the massive tax cut the rich got-sold as tax "reform".The poor have no $ THAT IS WHY WE SAY POOR!!THat leaves the middle class to pay the bill!!!!!!

[karenaolson]

If the Government really wants to help the economy, get us oput of IRAQ. Join us to stop the decay of America www.theoandavirus.com

[jimfinster]

DemsUnity:

I notice that you neocons spend a lot of time attacking Obama. But I never see an explanation of why we should vote for McCain. What is so great about McCain? Why should I vote for him? He looks like an old (and I do mean old) re-run of GWB.

[tootall10142]

The US government sent 17 billion in foreign aid to africa the last six to ten years and now they want to stimulate our economy,but they never sent one seed one tractor or one agriculture scientist to africa so line up and get resdy to get bent again this year.maybe just maybe some one might mention this to which ever political leopard gets elected this year.

[babooph]

Lets have the 10 years of $15000/year cash in hand the rich got-then the rest of us can buy Chinese stocks & reap some of the fat cash the rich got.