A Classic French Fold

Many touting economic stimulus checks as the economy's saving grace are talking out of both sides of their mouths.

Story Highlights:


  • According to today's Bureau of Economic Analysis report, income and consumption growth exceeded expectations in May.
  • Many have implied the unexpected growth is due solely to economic stimulus checks and is unsustainable.
  • Whether the stimulus has or hasn't helped ultimately doesn't matter—the consumer never needed rescuing in the first place.


It's unanimous. Perfect tens across the board. The economic stimulus checks sent by the federal government beginning in May boosted personal income, and consumer spending dutifully surged beyond expectations. Gold medals and handshakes all round.


Consumer Spending Jumps as Stimulus Checks Land
By Alister Bull, Reuters


Consumer Spending Rises; Key Inflation Gauge Tame
By Reuters,


Stimulus Sends Personal Income Surging
By Kenneth Musante,


Stimulus Checks Jolt Home Finances in May
By Associated Press,


Stimulus Payments Lift Spending
By Michael M. Grynbaum, The New York Times


After the high-fives and fist-bumps, many go on to question whether the current accelerated pace is "sustainable." Once the rebate checks are spent, we'll be back to square one, then things will weaken terribly and all the doom and gloom forecasts will finally come true. The implication being the only thing keeping us afloat right now is the economic stimulus package.


But something's fishy here. Was the French judge pressured? Weren't economists crying foul just six months ago, when we caught the first whiff of economic stimulus? The stimulus package wasn't going to have any effect at all. It didn't target the right demographic. It was politically motivated by election year antics. (Of course it was!) This joke of a solution was no more than a band-aid for a gaping wound.


We know politicians flip-flop all the time—it's their job. But it's easy to fall into complacency and forget sometimes a handful of economists have been known to do the same. In this case, they're talking out of both sides of their mouths. On the one side it was stimulus checks couldn't fix an impending recession. Now on the other side, those same stimulus checks are the sole reason growth continues right now, and the recession will come once they've been spent.


Behind all the static, today's reality is much simpler. Many of our politicians face reelection this year. To stuff stump speeches, they rode to the consumer's rescue with an economic stimulus package. Though the overall effect will likely be meager at best, whether the stimulus has or hasn't helped ultimately doesn't matter—the consumer never needed rescuing in the first place.


See for yourself here.


Personal Income and Outlays, May 2008
Bureau of Economic Analysis, US Department of Commerce

Yes, income and consumption appeared stronger last month, but stimulus checks or no stimulus checks, both have consistently grown all year month-to-month—despite worry to the contrary. And on Thursday, aggregate economic production (GDP) was revised up for the second time, putting growth at an honest 1.0% in the first quarter.


So, when the checks are all spent will the economy finally falter? Unless conditions change radically between now and then (and there's no indication they will, and they could possibly—dare we say it—improve), we see no reason to believe the hype. The economy was still growing before the stimulus hit and is likely to continue after.


We know it's a pressure cooker out there right now—and plenty of pundits are folding like French judges. But if anything's deserving of the gold medal, maybe it's the global economy for consistently moving forward in the face of overwrought fears.


(For more on why rebates typically have had little to no impact on aggregate economic activity, see our 1/24/2008 cover story, "Empty Calories.")




















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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.