Report: Stimulus Checks Help Stimulate Economy

Martin Crutsinger | Associated Press

8:57 AM EDT, June 27, 2008

WASHINGTON -- The millions of economic stimulus payments gave a massive jolt to household finanances 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 sqeeze 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.