Effect of economic stimulus checks matched transportation analyst projections
Jeff Berman, Group News Editor -- Logistics Management, 10/1/2008
WALTHAM, Mass. — When the White House signed off on more than $160 billion in economic relief back in March, the hope at the time was that stimulus checks to qualified U.S. taxpayers would provide a much-needed shot in the arm for the economy.
Now, more than four months after the initial checks were cut, the country has seen gas prices spike to record levels, continued layoffs, and an increased feeling of economic uncertainty fueled by the global credit crunch.
Before the checks were mailed there was a consensus among transportation industry analysts that if consumers would actually spend their rebates on retail items it would almost certainly affect transportation and logistics. In fact, back in February, Stifel Nicloaus Transportation and Logistics Group Managing Director John Larkin said the economic stimulus may result in “incremental freight demand” that would be fairly short-lived.
Recent data from the Department of Commerce reveals that Larkin was correct. In April, when the first round of stimulus checks was put in the mail, consumer spending nudged up 0.2 percent. This was followed by 0.1 percent and 0.4 percent declines in June and July. August numbers were not available at press time. And whatever small bounce that occurred in the domestic economy from the economic stimulus was quelled by low volumes in truck tonnage, railroad, import, and intermodal volumes during that period.
In a research report, Larkin said the biggest issues preventing the stimulus from having a meaningful impact were the credit crisis, fuel prices, the housing glut, a growing federal deficit, a negative but improving trade imbalance, and export capacity stretched, among others.
It appears that the stimulus had its biggest impact at large, discount retailers in June, as evidenced by strong sales growth at industry bellwethers like Wal-Mart, Costco, and Target, among others. But smaller, high-end retailers appear to not have benefited, with companies like Abercrombie & Fitch and the Gap reporting negative sales growth in June. Overall, retail sales were positive early on, according to Department of Commerce data, with sales up 1.0 percent in May (doubling the original estimate) and 0.4 percent in June before dipping 0.1 percent in July.
Another factor that muted the impact of the economic stimulus was that consumers went into spending “lockdown,” holding off on buying discretionary items and spending only on necessities like food, gas, and home supplies.
“When these checks were first mailed, there were hopes for a bigger bounce in the economy,” said Jonathan Gold, National Retail Federation vice president for Supply Chain and Customs Policy. “But things like increased fuel and food prices forced consumers to pay down their debts and they seemed to have less disposable income for purchases. This caused unintended consequences due to the dramatic rise in these costs…there is more of a focus on necessities now.”
This situation also changed the game plan from a logistics and supply chain management perspective as well, noted Gold. Logistics and supply chain managers at major retailers, he added, are continually updating forecasts based on what items consumers want and need and how much inventory they will need to stock on shelves at their stores.
With consumer spending having slowed down since the checks were issued, some shippers took a “business as usual’ approach during the period. “As far as making any major changes to our supply chain and logistics operations, that is not something we did,” said Charlie Kantz, vice president of logistics and warehousing for specialty retailer Bakers Footwear Group. “If the checks were to have a bigger impact than expected, it is something we were prepared to handle without altering operations.”
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