More bad news about the economy


Consumer side was pushed up thanks to the tax rebate. Government side was pushed up due to military spending. But what's happened now that there isn't as much stimulus on consumers or government? BEA doesn't release third quarter numbers until the end of October, but it looks like things might be slowing down.

They Spent the Tax Rebate. Now What Will Consumers Do?
If you send it, they will spend it.

The third quarter was a phenomenal one for the American economy, which probably grew at an annual rate of above 5 percent. Corporate profits soared.

As that growth occurred, economic optimism grew both in this country and overseas. There was talk that the American engine was again pulling the world back into acceptable growth patterns. Even American business leaders began to seem a little more optimistic, with capital spending plans starting to edge up. Only the negative job market outlook put a shadow on the sunny picture.

Overlooked in some of the analysis at the time was the most obvious fact of all: checks totaling $13.7 billion were being mailed out by Uncle Sam to millions of families. The checks, for the child tax credit, did not go to the poorest Americans, a fact that outraged liberal legislators who learned of the details only after the bill passed. And they did not go to wealthier Americans, who would have been more likely to save the money anyway. They went to the parents in between the two groups.

Now comes the aftermath. The checks were in the hands of Americans in July and August, and clearly lifted spending in the back-to-school season. We don't have September numbers yet, but there was probably some stimulative effect then. But it's over now.

"The fading of the tax-cut impact means consumption growth will slow significantly in coming months," said Greg Jensen of Bridgewater Associates, an institutional money management firm. "There is some chance this decline will be muted if corporations start hiring, but there are no signs they are doing that yet. Without a significant increase in labor compensation, spending growth will decline significantly and we could be in the early stages of a renewed dip in the economy."

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