Stimulus package seen as cushion

Recession will be difficult to avoid, even with the Federal Reserve’s dramatic interest-rate cuts and the $152 billion stimulus package President Bush signed into law yesterday, but economists say the extraordinary measures will help to cushion any downturn and promote a speedy recovery.

Over two years, the package is worth $168 billion.

Experience with tax rebates in 2001 shows that consumers will quickly spend 60 percent or more of rebate checks the Treasury sends out between May and July, ranging from $300 for the lowest-income workers and seniors living on Social Security checks to $1,800 for married couples with two children. Because consumers account for about 70 percent of economic activity, that will give an important boost to growth.

Tax rebates helped make the 2001 recession one of the mildest on record, and one of the easiest on consumers, who barely skipped a beat and kept on spending during the downturn. Economists hope that experience will be repeated this year.

“A U.S. economic-stimulus program can’t come a moment too soon,” given the breadth of the economy’s woes from falling home values to rising unemployment, said David Wyss, economist at Standard & Poor’s Corp.

“The hope is if they get money into consumers’ hands, they will rush out and spend it as quickly as possible,” he said. Recent surveys of consumers show that nearly half say they will use their $100 billion of rebates to pay down debt, but what consumers say often is different from what they do.

Consumers riddled with debt in recent years have had a propensity to spend nearly all of their incomes and are saving next to nothing, so Mr. Wyss said he is not too worried they would bank their rebates for another day.

In any case, given the current mortgage crisis marked by record foreclosures and defaults, economists say paying down debt would not be a bad use of the money, either.

While Congress and Mr. Bush hoped to avert a recession by passing the package, Mr. Wyss said the stimulus probably comes too late to do so. Economic reports show a recession could have begun as early as December or January.

“The result should be a more modest recession,” Mr. Wyss said. Even in combination with the Federal Reserve’s deep interest-rate cuts, “it’s probably not quick enough to prevent a recession from occurring.”

“It’s not a whole lot of money, but I think I am going to save it. Either that or pay some bills,” said Joseph Gormley, assistant dean of students at Gonzaga College High School in the District.

Robert Robinson, a Texas retiree, said he and his wife will use their $1,200 rebate to bolster their savings, which have been depleted by a drop in interest earnings on his retirement fund.

How consumers spend their rebates can make a difference for the economy. While spending on services such as health care, education, housing and utilities mostly helps domestic businesses and the economy, spending on goods such as clothing and autos is just as likely to stimulate imports and the economies of other countries with little benefit at home.

A study by the U.S. Business and Industry Council found that more than 60 percent of goods purchased by U.S. consumers come from overseas, including 90 percent of women’s coats and nonathletic shoes, and 96 percent of men’s shirts.

Federal Reserve Chairman Ben S. Bernanke testified he expects some of the stimulus to “leak” into the economies of U.S. trading partners, but he nonetheless urged Congress to act quickly on tax rebates to help cushion the U.S. economy.

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