Thursday, May 07, 2009

Did the March bonus payments boost consumer spending?

Joshua Gans thinks "not much".

As he puts it in comments:
Peter, the tone of this seems strange. If spending jumped 2.2% that is about $418m right ($19b x 0.022). So that means the marginal propensity to consume is just 10 percent given that the March stimulus was $4b.

Am I missing something? Why the celebration?

1. Let's look at the ABS graph:

It can be seen that the December stimulus payment continued to have an effect well after December, and that effect continued well into February, and is probably continuing still.

Retail spending in each one of the months since December has been much higher than it would have been under any plausible scenario. I did the figures a month ago and put them here.

2. Also the $3 billion in March bonus payments would have barely been gone into accounts... when the March retail survey was done. It is unreasonable to say that 90 per cent was saved - "not yet received" or "awaiting a visit to the shops" would be a better description.

3. And if the December bonus payment is any guide, it is quite clear that the extra spending from the March payment will continue for some time.

4. And a lot of the extra spending won't captured in the retail trade statistics. You would need to bulk up those stats up to get an idea of how much of the bonus was spent.

So I reckon things look pretty good. Yes, there would have been more effective ways to stimulate the economy (and the government has tried some of those as well), but there also would have been worse ways.

In any event, there won't be further stimulus payments. The recipients don't like them. We're a funny lot.