JUNE 2008 W2 ALERT
Retail Feels Rebate Reality
Economists says the tax rebates worked, retail sales increase in May
Reuters is reporting that retail sales increased in May at twice the expected rate and that this is most likely the result of the government tax rebate checks mailed to consumers in early May. With an increase of a full percentage point, according to the Commerce Department survey, this rate was a surprise to some economists and the financial markets as well.
However, some economists note that the effect could be fleeting as consumers struggle with soaring energy and food prices. Not only that, but some economists believe that the Fed, now concerned more than ever with inflation, may turn their policy from one of interest rate cuts to increases.
In fact, Fed Chairman Bernanke was recently quoted as saying, “The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations. The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.”
“I don’t think they’re going to hike in June, but I think they’re going to lay some of the groundwork that could be the precursor to rate hikes,” said Wells Fargo economist Scott Anderson.
While higher gasoline prices contributed to higher sales at service stations, even removing oil from the report, retail sales showed an increase of a significant .8% which is the largest gain in retail sales in a year.
Of course recent reports of unemployment increases add to the economic confusion. Still, many view the May retail sales report as a breath of fresh air, in an otherwise smoggy economic outlook.