Stimulus plan called not much help to consumers

By Justin Grant and Alexandria Sage

NEW YORK (Reuters) - Retail stocks fell on Thursday as analysts said a proposed $150 billion U.S. economic stimulus package aimed at averting a recession will provide little relief for struggling retailers and cash-strapped consumers.

The White House and Congress reached a tentative deal that would grant individuals a maximum rebate of $600 and married couples up to $1,200, plus $300 per child. House of Representatives Speaker Nancy Pelosi, a Democrat, vowed further action if needed to boost the economy.

With consumers grappling with high debt, rising food and fuel costs, and negative savings, the proposed stimulus package would not do enough to spur flagging consumer spending, said Howard Davidowitz, chairman of New York-based retail consulting firm Davidowitz & Associates Inc.

"Everybody recognizes that the stimulus is not going to do anything on a permanent basis. It's just a drop in the bucket," he said.

"When you look at someone who's put nothing down on a house and now has negative equity, do you really think this addresses any of these issues?"

Retail stocks, meanwhile, lost some of the gains made following the Federal Reserve's move on Tuesday to cut the fed funds rate by 75 basis points.

The Dow Jones U.S. Retailers Index .DJUSRT fell 1.5 percent while the Standard & Poor's Retailing Industry Group Index .GSPMS lost 1.2 percent.

Shares of Wal-Mart Stores Inc (WMT.N) closed 2.4 percent lower. Family Dollar Stores Inc (FDO.N) fell 5.4 percent, Circuit City Stores Inc CC.N was off 1.4 percent and Target Corp (TGT.N) dropped 2.7 percent.

Consumer spending, which accounts for about 70 percent of the U.S. economy, has been hurt over the past half year or more as rising fuel and food prices have compounded housing and financial market woes.

Congress and the Bush administration have been negotiating for several days in an attempt to inject cash into consumers' pockets to minimize the fallout from an economic slowdown that some fear could morph into a recession.

The National Retail Federation issued a statement welcoming the agreement. The trade group had earlier pressed President Bush and Congress to take action.

"The proposal put forth today is a simple, targeted economic stimulus that will quickly put money into consumers' pockets where it can boost economic growth by creating demand throughout all sectors of the economy," said NRF's Steve Pfister, senior vice president for government relations.

But rather than sending out checks to voters in an election year, the government should be turning its attention to building infrastructure, and research and development spending, said Mark Coffelt, chairman of Empiric Funds in Austin, Texas.

"That would accelerate capital spending which is a little on the weak side," said Coffelt, who holds short positions on retailers.

"Focusing on infrastructure would have an immediate and long-term effect. Focusing on the consumer ... there are theories that people don't respond to it."