Stimulus effective in lifting spending: study

WASHINGTON (Reuters) - Tight-fisted consumers wary of anemic economic growth opened their wallets between May and July and spent their economic stimulus checks, a recent study has found.

"Our findings underscore the potency of the economic stimulus payments in stabilizing consumer spending during recessions," said authors Christian Broda of the University of Chicago and Jonathan Parker of Northwestern University.

The typical family increased their spending on food, mass-merchandise and drug products by 3.5 percent when their government stimulus checks arrived, the study found.

The extra spending implies the average recipient spent about 20 percent of their stimulus checks on non-durable goods -- goods such as paper products and food items that are used up quickly, the authors wrote.

According to the study, the overall nondurable consumption in the second quarter has been boosted by 2.4 percent directly due to the stimulus payments, and will be held up by about 4.1 percent in the third quarter.

The government releases its first accounting of second- quarter economic growth on Thursday and economists expect it will show a sharp pickup.

Earlier this year, the Democratic-led Congress and the Republican Bush administration forged bipartisan cooperation to hammer out a package that includes billions of dollars in one-time rebates to taxpayers.

In February, President Bush signed the $168 billion, two-year economic stimulus package into law to stave off an election-year recession.

In total, 112.4 million stimulus payments have been sent out, injecting $91 billion into the U.S. economy, according to the U.S. Treasury Department.

RETAIL BOOST MAY FADE FAST

Government data shows the stimulus payments gave a bigger boost to retail sales in May than in June, and many economists have said the positive effects will subside in the second half of the year, leaving the economy at risk of recession.

The study showed that low-income and low-asset households raised their spending at nearly double the rate of the average household and that shoppers in general spent a higher share of the rebate in discount stores such as Wal-Mart Stores Inc (WMT.N) and Target Corp (TGT.N).

The professors said they tracked the weekly expenditures of more than 30,000 households who received or were about to receive payments in order to determine the effectiveness of the program.

"We find that to a significant extent (it) succeeded: we find that the stimulus payments are initially being spent at significant rates," the authors said.

They said the rates at which the payments were spent were slightly higher than those observed in 2001 when a similar program was put in place that was credited with helping end the 2001 recession.

(Reporting by Nancy Waitz; Editing by Jan Paschal)