It's the million dollar question right now: Will the economic stimulus plan stimulate the American economy? We have heard so many opinions on this topic in the past week or two, and there is certainly no consensus whatsover on this question. Some say the amount that is being put back into the economy is just a drop in the bucket and will do nothing, while others say it will stave off economic recession.
The truth is that no one knows exactly what will happen from this stimulus plan until the checks are sent out in the mail and the consumers make their decisions on how to use those checks. What I think may be happening though is that the media and many pundits are overlooking the key factor in this question. I believe the key factor here is that these tax rebates will likely help the consumers be more confident about the economy.
Consumer confidence has suffered greatly in the last few months. Back in July consumers were very confident about the overall economy and the confidence number was hovering around 114. Fast forward just six months later to January's number and it has dipped all the way to 87.9. Six months of mortgage and housing problems and fixed-income market turmoil has taken a toll on the index. Perhaps even more important is the Expectations Index, which has fallen all the way down to 69.6. The Expectations Index is a measure of consumers feelings about the future of the American economy.
As the checks start rolling out in May and the pundits start crunching every number possible to see if the consumer is responding to these tax rebates, keep a close eye on the consumer confidence number. If consumers are buoyed by the checks they receive in the mail and begin to feel like the situation is more stable, an economic recovery could very well be in the cards.
Here are a couple related posts with more details about the Economic Stimulus plan and what it means to you and the economy as a whole:
http://www.growyourfunds.com/2008/02/economic_stimulus_act_of_2008.html
http://www.growyourfunds.com/2008/02/tax_rebate_or_advance_yes_its_1.html
This recession just goes to show how unpredictable the economy can be. As mentioned in your post, it was just six months ago when consumers were confident with the economy. Although I remember some bloggers already predicting the US recession a few months before it actually hit. One important lesson is to always be prepared for the worse. Or have a backup plan.
Posted by: Julie, writer Surefirewealth.com | February 26, 2008 3:02 AM | Permalink to Comment