Logistics news: impact of economic stimulus checks ends up in line with original projections

Despite multi-billion infusion, consumer spending and retail performance remains largely flat

Jeff Berman, Group News Editor -- Logistics Management, 9/5/2008

WALTHAM, Mass.—When the White House signed off on more than $160 billion in economic relief in the form of stimulus checks for those US citizens that qualified in March, the hope at the time was that these checks would provide a much-needed shot in the arm for the economy.

But fast forward four months later, and it becomes clear that the reality is far different than what was potentially expected. In the time since the checks were first cut, gas prices spiked to record levels (although they have since subsided), layoffs continue to rise and job reports numbers continue to dwindle, the dollar continues to decline, and a feeling of economic uncertainty still prevails.

What’s more, it appears that the economic stimulus has not paid off for transportation and logistics services providers either—at least not to the extent that was anticipated. Prior to the checks being mailed to US consumers, there was an underlying consensus, industry analysts told LM, that if consumers spend their rebates with the money going back into the economy, it would have a major impact on transportation and logistics. But whatever bounce that occurred in the domestic economy from the economic stimulus was quelled by the low volumes being seen in truck tonnage, railroad, import, and intermodal volumes.

In February, Stifel Nicloaus Transportation and Logistics Group Managing Director John G. Larkin told LM that the economic stimulus may ultimately result in “incremental freight demand” which would be fairly short-lived.

A closer look at consumer spending numbers from the Department of Commerce reveals that Larkin’s forecast was right on the money. In April, when the first round of stimulus checks was mailed out, consumer spending nudged up 0.2 percent. This was followed by 0.1 percent and 0.4 percent declines in June and July, the most recent months for which data are available.

And in a July research report, Larkin cited the following as the biggest issues preventing the stimulus from having a normal impact: ongoing credit crisis, fuel prices, the persisting 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 in any meaningful way, 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 on May (doubling the original estimate) and 0.4 percent in June before dipping 0.1 percent in July.

And by mid-July, a report in The Wall Street Journal indicated that according to National Retail Federation data 80 percent of all stimulus checks had already been spent, with less carryover expected in July, which turned out to be accurate.

Another factor that muted the potential impact of the economic stimulus was that many consumers went into “lockdown” mode in terms of spending, 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 that that we would see 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 seemed to have less disposable income for purchases. This situation 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, said Gold, are continually updating forecasts based on what items consumers want and need and how much inventory they will need to stock shelves at their stores.

These forecasts heavily reply on year-over-year comparison sales to make these determinations, noted Gold, and in recent months have focused on back-to-school and holiday forecasts. Back-to-school sales, the NRF said in July, may be a major reason as to why the stimulus was shorter-lived than hoped for, with the organization predicting at the time that one-fifth of parents nationwide saved a portion of stimulus checks for back-to-school purchases.

But even with consumer spending having slowed down since the checks were initially issued, some shippers looked at the economic stimulus checks with a ‘business as usual’ approach.

“As far as making any major changes to our supply chain and logistics operations, that is not something we did, due to the situation many consumers are in…with having to pay down debt and things like that,” 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.”