Economists Worry as Consumers Spend Rebate Checks on Food and Gas

Economists Worry as Consumers Spend Rebate Checks on Food and Gas
The boost to the economy has not occurred as expected after government rebate checks are going toward bills and basic expenses, not splurges. By Anastacia Mott Austin

The U.S. economy only saw a .02 percent bump after consumers began receiving their "economic stimulus" checks last month. That’s because for most folks, rising gas and food prices have turned them into "stretch the budget to the next payday" checks.

The Bush administration had hope that giving people back a little bit more of their own money ($110 billion in total) might give a much needed boost to the tanking U.S. economy.

However, in the past few months, $4 a gallon gas and sharply rising food costs have forced those who fantasized about buying that big-screen TV to consider how they need to focus instead on keeping a roof over their heads.

"In the economic grand scheme of things, I'm not quite sure that's what they intended us to spend our money on — inflation — but that's where ours went," said Brandi Dobbins to reporters.

Dobbins wasn’t alone. Countless stories were shared of people who had initially thought about spending their economic-boost checks on vacations or high-tech toys, but then realized they needed to pay overdue bills or stock up on necessities.

Chris Benton, 40, a network manager, told reporters, "I just put mine right in the bank," saying he’d originally wanted to buy some luxuries but changed his mind. "I'd like to buy a Blu-ray disc player," said Benton. "But with gasoline prices the way they are, I decided to hold on to it."

Economists say they’re worried. United States economist Joseph LaVorgna from Deutsche Bank told reporters at ABC he was surprised by how much of consumers’ checks are going to be spent on energy costs. "It's not going to give you the bang for the buck as originally envisioned," said LaVorgna to reporters. "The odds of it having a longer-lasting impact on the economy are less. People were [originally] not planning to use so much of it on energy and food."

There are, of course, some people who decided to either throw caution to the wind or defended their splurges as altruistic attempts to boost the economy. Sales at electronics stores saw a mild up tick during the month of April.

Best Buy has been offering a "rebate check" deal, in which 10% of the check’s value is added to the total and transferred to a gift card redeemable at the store if the entire check is cashed there. "[Customers] are spending those checks on home theaters, big-screen TVs, desktop and laptop computers, and digital cameras," said Jesse Guzman, who works at a Best Buy store in Tennessee.

But Guzman himself is not spending his rebate at the store where he works. "I have kids who need their wisdom teeth removed," said Guzman to reporters. "That's where mine is going."

One economist, Diane Swonk from Mesirow Financial in Illinois, says that people deciding to spend their windfalls on basic living expenses is a sign of "a very stressed consumer."

However, other economic experts say the picture isn’t as dire as it might seem, and predict that the U.S. will not even slide into a full recession.

Only time will tell. In the meantime, folks remain grateful that they’re getting the money, even while worrying about how far it may go.

"Honestly, I think it's kind of silly that the government is paying us money when it's having such a hard time paying its own bills," said graphic designer Sara Jackson, to ABC. "But shoot, who's going to turn down money when they give it to you?"