WASHINGTON — The $150 billion economic stimulus package agreed between House leaders and the White House Thursday should give a boost to retailers this summer by injecting fresh cash into the hands of consumers, although the news didn’t help retail stocks as they lagged behind broader gains on Wall Street.
This story first appeared in the January 25, 2008 issue of WWD. Subscribe Today.
In what has become a rare instance of bipartisan politics, House Speaker Nancy Pelosi (D., Calif.), Minority Leader John Boehner (R., Ohio) and Treasury Secretary Henry Paulson Jr. unveiled the deal aimed at reviving the faltering economy at a press conference on Capitol Hill. The package includes about $100 billion in tax rebates and $50 billion for business tax cuts.
The tax rebates would go to 117 million families, with most tax filers receiving refunds of $600 for individuals, $1,200 for couples and those with children an additional $300 a child. The package also includes a Democratic-backed refund of $300 per individual and $600 per couple for 35 million working families who make at least $3,000 a year but do not pay income taxes because their salaries are too low.
The rebates would phase out gradually for individuals whose income exceeds $75,000 and couples with incomes above $150,000.
President Bush said in a statement: “I am pleased that this agreement meets the criterion that I set forth last week to provide an effective, robust and temporary set of incentives that will boost our economy and encourage job creation. This package has the right set of policies and is the right size. The incentives in this package will lead to higher consumer spending and increased business investment this year.”
But economists are divided over the stimulus package’s overall impact on the economy, although most agree the tax rebates will benefit retailers by boosting consumer spending.
“When you look at these tax rebates, they are basically putting some spending power back into the consumers’ pockets,” said Brian Bethune, a U.S. economist for Global Insight. “The question is over time, how much of it will they spend and how much of it will they save?”
Bethune said Global Insight is forecasting that consumers will spend 50 to 60 percent of their rebates over the course of two to three quarters.
As for retailers, Bethune said, “Given the bulk of households are in the low- to middle-income range, then in terms of volume, the spending is certainly going to have greater benefits for core retailers. The big chains are going to do well in terms of getting their share of it, whether it’s Wal-Mart, Sears, Home Depot or Loews. They are all going to get a piece of it.”
The package didn’t boost retail shares Thursday, however, even as the market reacted positively overall. Coming off Wednesday’s high, Wall Street continued to post notable gains. The Dow Jones Industrial Average swelled 0.9 percent to 12,378.61, while the broader S&P 500 increased 1 percent, ending the day at 1,352.07. The S&P Retail Index fell 1.2 percent to close at 405.91. Earlier this week, retail shares had seen gains of 6 to 10 percent, and higher.
Overseas, Tokyo’s Nikkei 225 closed the day up 2.1 percent to 13,092.78, while London’s exchange rose 4.8 percent to 5,875.80.
In the U.S. retail sector, discounters and department store stocks declined. Retail giant Wal-Mart Stores Inc. fell 2.5 percent to $48.92, while rival Target Corp. dropped 2.6 percent to close at $53.
Gottschalks Inc. fell 8.1 percent to $2.26, Sears Holdings Corp. decreased 2.2 percent to $105.02, J.C. Penney Co. Inc. sank 1.8 percent to $43.63 and Kohl’s Corp. declined 2.2 percent to $43.08. But investors did find some bargains in specialty apparel stocks. Shares of women’s apparel retailer Charming Shoppes Inc. rose 7.9 percent to $4.77, while Tween Brands Inc. increased 5.6 percent to $31.01.
The House and Senate will both have to pass stimulus legislation and reconcile any differences between the two bills before President Bush can sign and enact the plan.
“I can’t say that I’m totally pleased with the package, but I do know that it will help stimulate the economy,” Pelosi said. “But if it does not, there will be more to come.”
Senate Majority Leader Harry Reid (D., Nev.) said in a statement the Senate will add things to its bill that the House bill does not contain, including unemployment benefits, nutrition assistance, state relief and infrastructure investment.