WASHINGTON — Some members may soon be coming into their credit unions to cash the so-called "rebate" checks to Americans from the federal government, but economists are not expecting the one-time payments to have much of an effect on either personal or CUs' bottom lines.
NAFCU's Director of Research and Chief Economist Dr. Tun Wai expects the total federal outlay for the rebates will total about $100 million, or 1% of GDP. But what will consumers do with those checks? Wai pointed to 2001, when a similar rebate went to virtually everyone. At that time, he recalled, one-third of consumers saved their checks, one-third spent it and one-third paid off debt.
Under the current plans in Congress, however, not everyone will receive a check this year, including households that earn more than $75,000 annually. Wai said if people don't consume, they will pay off debt. In either case, it should help the economy sooner or later.
"For those who pay off debt, then they will be able to consume in the future," he explained. "Bottom line, there will be an effect associated with the rebate. But is Congress moving fast enough to get the money where it needs to be today, rather than three months from now? That often is the problem with fiscal policy."
He said it won't be known for several quarters whether the plan had its desired effect.
Other economy watchers were less sanguine on the possible benefits of rebate checks. Dwight Johnston, VP-economic and market research for San Dimas, Calif.-based WesCorp, said the checks will help "a little bit" on the sales side, "Especially at Wal-Mart and Target; Nordstrom not so much," he said with a laugh.
Bruce Fox, SVP/senior investment officer, Southwest Corporate FCU in Dallas, assessed: "The effect will be somewhat muted. In aggregate, we can expect about a 1%, one-time effect on GDP. It will be a positive impact, but it will be short-term, unlike a tax cut, which keeps giving year after year. After it is spent, what happens next? It can be effective in supporting consumption on a short-term basis, which is what they are looking for."
Johnston said the real issue isn't consumer spending, but problems in the credit markets, including too many bad mortgages in recent years putting people into homes they can't afford. Consumers facing an adjustable-rate mortgage that is about to reset to a much higher monthly payment will not be bailed out by a one-time rebate check, he noted.
However, there could be a "psychological boost" to consumers, Johnston acknowledged.
"You never know until the final numbers are out, but …if they know the check is in the mailbox, there is a tendency to spend it, which is the intent," he said.
Southwest Corporate's Fox noted the majority of rebate checks will go to middle- and low-income consumers, which he said means they are going to the proper consumer groups to be spent in current consumption.
"With the monetary stimulus that is going on with Fed rate cuts, plus the checks, hopefully will avert the recession possibility," said Fox.
Terrin Griffiths, the California league's economist and industry analyst, told Credit Union Journal there is a major difference between 2001 and 2008. "There are negative factors impacting households on a very individual level today," she assessed. "Households are a lot more indebted, compared to their income level, than 2001."
But will the rebate checks stimulate the economy? "We are looking at a time when households are heavily indebted and worried about a lot of things," she explained. "Many of the people who receive these checks might use them to pay down debt, or set up a savings account if they are worried about future instability. Overall, it won't have the magnitude of the impact the government is hoping for."
(c) 2008
