Tax rebates have begun dropping into bank accounts, but in this economy, gas and groceries may trump a high-end TV, a fancy dress or a new sofa — making the checks less of an economic jump-start than the government hoped for.
The first direct deposits from the Internal Revenue Service landed in bank accounts Monday, shoppers were already using the cash to play catch-up on the basics, such as milk and other groceries.
Analysts say the rest will probably be used to pay down debt.
Alicia Flaxman, a stay-at-home mother from Seekonk, Mass., was shopping at a Target store Monday and said she would use some of the rebate for food — cheaper items like potatoes, not more expensive meat and fish.
“My bills are double,” she said. “I go to the supermarket and I spend $200. I used to spend $120.”
The rest of the money will probably go for summer clothes for her three children, she said.
The IRS aims to make 800,000 payments every day for the first three days of this week. No deposits will be made Thursday, and about 5 million on Friday.
How you receive the rebate depends on how you filed your taxes. Paper checks will go out beginning May 9. The exact timing for both direct deposit and paper checks depends on the last two digits of your Social Security number.
The rebates, which are expected to reach 130 million households, range up to $600 for individuals and $1,200 for married couples, plus $300 per child for eligible parents.
Eric Mossack of Spring Hill, Tenn., had his $1,200 rebate in his checking account Monday and spent some of it on clothing from Gap, Kohl’s and other stores — his first shopping spree in a few months, he said. The rest will go to car payments.
“We paid off something we owed, and had a little extra to spend,” said Mossack.
But Bethany Blankley of Manhattan, who works in public relations, said she would immediately put the $600 she received Monday toward paying off credit cards. “The interest rates are high,” she said.
That kind of frugality doesn’t surprise analysts, who say shoppers are earmarking more of their money for groceries, the utility bill or credit card payments. Besides grocery chains, they expect discount retailers like Wal-Mart Stores Inc. and off-price clothing outlets like T.J. Maxx to benefit from the stimulus checks.
“Consumers are so feeling the pinch that ... they are really being forced to step away from luxury or discretionary purchases,” said Janet Hoffman, managing partner of the North American retail division of Accenture.
But department stores and consumer electronics stores are unlikely to see a “measurable lift,” Hoffman added. “The amounts are not that significant.”
By comparison, previous government stimulus plans led to a lift across the entire retail industry, said Stacy Janiak, vice chairman and U.S. retail leader at Deloitte Research.
The rebates go out as the IRS finishes sending out its regular annual tax refund checks.
In an Associated Press-AOL Money & Finance poll earlier this month, 35 percent said they would use their regular tax refunds for bills and credit card payments. That was up from 27 percent who said that a year ago.
With consumer spending screeching to a halt in recent months, the retail industry needs shoppers to splurge. That’s a big challenge. Gas could reach $4 a gallon this summer, and a gallon of milk is now about $4 on average as well.
“People who were eating steaks last year are now eating hamburger meat and pasta this year,” said Burt P. Flickinger III, managing director of the consumer industry consulting firm Strategic Resource Group. “People are going to be able to put good food on the table, but in a few weeks they will go back to hamburger meat and macaroni.”
Retailers have already tried to grab a share of the billions of dollars flowing to households. Sears Holdings Corp. is offering discounts and freebies to shoppers who convert rebate checks into gift cards. Home Depot Inc. launched a campaign urging people to spend on eco-friendly products like energy-saving light bulbs..
Kroger Co. has already announced that shoppers can convert $300 rebate checks into a $330 Kroger gift card.
“I’d estimate that we had about 100 people indicate they were ready to get the cards as soon as they could,” Brad Casebolt, the manager of a Kroger said in Sharonville, Ohio, said Monday. “The interest in it really has been overwhelming.”
Joyce Gundling, who was loading groceries at another suburban Cincinnati grocery, said she would take advantage.
“The way groceries are skyrocketing, I’ll probably end up spending here anyway,” she said. “This way, I get more for my money.”