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Spending's up, but for how long?

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Kai Ryssdal: This morning the Commerce Department confirmed that American consumers are creatures of habit and we like to spend our money if it's in our pocket. Retails sales rose last month: a full percent, about twice expectations.

Where'd we get the extra money to go shopping in a down economy? Thank the stimulus package and those rebate checks.

But Marketplace's Nancy Marshall Genzer reports there are worries it won't help the economy in the long run.


Nancy Marshall Genzer: In May alone, the Treasury Department cut about $48 billion worth of rebate checks. Economists say consumers spent at least part of that, but retail analyst Howard Davidowitz says the spending is just a short-term blip.

Howard Davidowitz: You're throwing checks out of helicopters to people and there's a lot of pent up demand out there. I don't think this changes anything.

And such a small growth spurt won't lead to new jobs, says Mike Darda. He's chief economist at MKM Partners.

Mike Darda: No rational business owner is going to start hiring employees based on a temporary spike in sales that they know will reverse. We should have learned that rebates are feckless and phony fiscal policy, but apparently we've learned nothing.

But politicians have learned that voters don't like a tanking economy. Ian Shepherdson is chief U.S. economist at High Frequency Economics. He says the Bush administration hopes the positive bump lasts through the November elections, but Shepherdson says retail sales might actually nosedive toward the end of the summer. Why? Consumer confidence is still shaky. Look at whose sales increased the most last month:

[Wal-Mart Ad]: Save money, Live Better: Wal-Mart.

Shepherdson isn't surprised that the discounters are gaining market share.

Ian Shepherdson: That trend will probably run for some time yet as we discover that an awful lot of the wealth we thought we had over the last few years was an illusion."

But high food and energy prices are very real. Shepherdson says, when the rebate checks are gone, consumers will slam their wallets shut.

In Washington, I'm Nancy Marshall Genzer for Marketplace.

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.
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Wait a sec Kai, were those retail sales adjusted for inflation? Yes the Commerce Dept numbers show we spent more last month. But I doubt that's real growth. More likely what happened is prices of staples like fuel and food are going up. The $ is falling in value, so prices of all things imported are rising, as are all commodities. We have to buy food, and fuel, so we're cutting back on cars and Gap Jeans and buying our necessities at Wal-Mart. Look for some real inflation to eventually show up in the governments stats. Price inflation does not equal real growth in the economy. And now that fuel has doubled for another year, I wonder if the eventual doubling in the price of milk and meat will get people upset?

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