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Update: How Consumers Will Spend Their Rebate Checks

Food and gas inflation is taking its toll.

by the National Retail Federation (May 19, 2008)

Consumers still plan to spend about forty percent of their tax rebate checks, sending $42 billion back into the economy, but what they plan to buy has shifted slightly from February, according to the findings of a National Retail Federation survey, conducted by BIGresearch.

Because of the increasing prices of gas and groceries, consumers plan to spend more of their rebate checks on necessities like gas and food rather than on discretionary items like electronics and apparel. Due to the rising cost of fuel, the largest leap in rebate spending will come at the pump, as 17.2 million people plan to use some of their tax rebate check to pay for gasoline, up from 12.1 million people who planned to do so in February. The rising cost of everyday items like milk, bread and rice also means that more consumers plan to spend the checks on groceries, with 21.2 million people using a portion of the check for food, up from 20.4 million people in February.

As a result, fewer people plan to spend rebate checks to buy furniture (2.7 million vs. 4.0 million in February), purchase a vehicle (2.4 million vs. 3.2 million in February), or use it for "me" time at a salon or spa (2.9 million vs. 3.5 million in February).

"The rising cost of groceries and gasoline means that discretionary spending is taking a backseat to necessities," said NRF President and CEO Tracy Mullin. "For many consumers, struggling with rising bills and lowering home values, economic stimulus checks could not come at a better time."

The survey reinforced February estimates on how consumers would spend the $105.7 billion being distributed in tax rebate checks. According to the findings, consumers as a whole plan to spend 39.9 percent of their tax rebate checks, providing a $42.2 billion boost to the economy. Consumers will also use the money to pay down debt ($28.1 billion), save ($20.1 billion), invest ($3.4 billion) and pay medical bills ($4.9 billion). (Consumers said they will also use $6.9 billion in "other" ways.)

In February, President Bush signed H.R. 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008. The $152 billion measure provides tax rebate checks of up to $600 per working individual and $1,200 per married couple, plus $300 per child for families with children and new tax incentives for job-creating business investments.

"Many retailers have already announced creative promotions to give consumers an extra incentive to shop with them," said Phil Rist, Vice President of Strategy for BIGresearch. "Some retailers are helping customers stretch the value of their rebate check further by tacking on an additional ten percent to gift cards purchased or holding special in-store promotions."

According to the survey, women are more likely to spend and/or save portions of their rebate check, while men are more likely to pay down debt. Young adults 18-24 will spend more of their checks (43.5%) than any other age group.

The NRF 2008 Tax Rebates Consumer Intentions and Actions Survey was designed to gauge consumer behavior and shopping trends related to the upcoming tax rebates. The survey, which polled 8,347 consumers, was conducted for NRF by BIGresearch from April 29-May 7. The question asked, "The sending of the economic-stimulus rebate checks/ payments began Monday, April 28. What are you planning on doing with the money?" The consumer poll has a margin of error of plus or minus 1.0 percent.

BIGresearch is a consumer market intelligence firm that provides unique consumer insights that are gathered online utilizing very large sample sizes. BIGresearch�s syndicated Consumer Intentions and Actions survey monitors the pulse of more than 7,000 consumers each month to empower its clients with unique insights for identifying opportunities in a fragmented and changing marketplace.

The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail companies, more than 25 million employees - about one in five American workers - and 2007 sales of $4.5 trillion. As the industry umbrella group, NRF also represents over 100 state, national and international retail associations.

(Note: To read previous "Benny" columns, click on the titles in the right-hand column.)

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