Experts: Economic stimulus plan would be short-term shot in the arm

Experts: Economic stimulus plan would be short-term shot in the arm

WASHINGTON —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

While lawmakers were still hashing out at press time the details of a package intended to stave off a widely anticipated recession, experts conjectured that the effects of the plan would be short-lived and possibly less potent than in 2001 when the government last issued tax rebates. At the same time, observers noted that some of the tax write-offs law-makers were dangling before businesses could prove more beneficial than the projected quick hit of consumer spending. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

The anticipated plan, which Congress is expected to finalize before recessing Feb. 15, would rely heavily on boosting consumer spending through a series of proposed tax rebates aimed primarily at lower-income taxpayers. Individuals making less than $75,000 annually would receive $600 and married couples making less than $150,000 annually would receive $1200 as well as $300 per child. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

In 2001, lower-income recipients spent, rather than saved, their rebates, according to the National Bureau of Economic Research. The bureau found that 66 percent of rebates were spent on nondurable goods, boding well for the restaurant industry if the pending rebates are received in May or June as expected, observers said. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

“Putting a larger sum of money—at least double what was received in 2001 on a per-household basis—into the hands of individuals who, we assume, have a greater propensity to spend it should provide an immediate benefit to restaurants,” Christopher O’Cull, a restaurant securities analyst at SunTrust Robinson Humphrey, said in a late January research report. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

He noted that he also expected restaurants, especially lower-priced quick-service chains and lower- to middle-priced casual-dining brands, to target the rebate recipients with even more value-oriented promotions to help drive guest traffic. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

Yet while a spike in restaurant sales is projected shortly after rebate checks arrive in the mail, O’Cull said he does not expect “the benefit to be sustainable.” —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

Chip Kunde, vice president of government relations at Darden [3] Restaurants Inc., agrees. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

“As we’ve seen with past packages, people do go out to eat, and we would expect to see that again,” he said. “But once the rebate is spent, it’s spent.” —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

Kunde said the proposed tax write-offs, which currently call for immediate write-offs of 50 percent of the purchase price of facilities and other equipment, could be more beneficial to restaurateurs than the expected spike in consumer spending. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

“It’s a write-off of 50 percent of the value of equipment in 2008, and that’s on anything from computers to kitchen equipment,” he said. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

In addition, small businesses could benefit from a provision that would double the amount they could write off for new investments, meaning they could fully expense $250,000 in new and used tangible property the year it’s purchased, according to the National Restaurant Association [4]. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

The write-offs were proposed to encourage business owners to invest in their businesses, which in theory should boost hiring. Concern about the employment environment has grown after the jobs report for January showed that employers had cut 17,000 jobs, the first drop in payrolls in four years. The report furthered fears that the economy was quickly sliding into recession and made passage of a stimulus package, paired with further interest rate cuts from the Federal Reserve, a top priority in Washington. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

Yet even the write-offs are short-term fixes, Kunde noted, as once 2008 ends, the write-off period also ends. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

“What would make sense, in our view, is longer-term economic boosts,” he said. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

Kunde said Orlando, Fla.-based Darden, which is one of the largest restaurant companies in the industry, along with the National Restaurant Association and others, is lobbying for help for businesses in the forms of a permanent 15-year schedule for building depreciation, versus the current 39.5-year schedule, and hiring incentives, like those included in the Work Opportunity Tax Credit. Providing federal tax credits to employers who hire at-risk workers, like exfelons, veterans with disabilities or teenagers residing in lower-income communities, the current Work Opportunity Tax Credit will expire in 2011. Kunde said it would make more sense for lawmakers to create a permanent incentive plan rather than ad-hoc renewals of these types of plans, so restaurant companies could create long-term employment programs. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

Despite limited optimism about the effects of the pending stimulus package, some observers don’t expect any move by the federal government to halt the downward fall of the economy—or even benefit restaurants. While consumers spent much of their tax rebates in 2001, they are under more pressures today, one analyst contended. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

“We’ll see an effect in the restaurant industry,” said Stephen Anderson, an analyst at MKM Partners, an institutional trading and research firm in Greenwich, Conn. “But no, it will not be as pronounced as 2001.” —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

Anderson said there are currently too many items “competing for the consumer,” like high levels of debt coupled with higher minimum credit card payment requirements, increased gas prices and falling home values. He pointed out that the average gas price nationwide when the rebate checks were mailed in the summer of 2001 was just $1.50 per gallon. Last summer, the country saw gas prices as high as $3.50 per gallon. Expectations are that gas prices will remain elevated this year, especially as oil traded as high as $100 a barrel just recently. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

In addition, both the housing crisis and the stock market’s volatility have changed the economy drastically since 2001, reducing the wealth of many households. Consumers can no longer count on the equity in their home to supplement spending, and stock portfolios have taken notable hits in late 2007 and into this year. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.

According to a report by Federal Reserve governor Frederic Mishkin, for every dollar cut from a typical house’s value in the United States, spending by the owner may be cut by up to 7 cents. For every dollar lost in the stock market, spending could be cut by 4.5 cents. On a nationwide basis, those dollars and cents would no doubt add up to billions of lost consumer spending, which rebate checks may or may not replace. —Consumer rebates in the pending $150 billion federal economic stimulus package could jolt the U.S. economy like a double espresso, then quickly leave restaurateurs feeling empty, operators and industry analysts warn.