What if we spent every penny?

What $100 billion does to the economy

Of course, even $100 billion can only stretch so far. But don't underestimate it. In a short spurt, it can pack a punch. The sum equals about 1% of annual consumer spending. Consumer spending is about 70% of the country's $14 trillion gross domestic product.

Allow for some money going overseas (about a third of consumer hard goods are imports) and if the spending impact were concentrated in July to September, third-quarter GDP growth could top 4%, economists say.

• Smart Spending blog: Savings tips to make your rebate check last

That's double many forecasts. In a slow year (expected 0.8% to 2% annual growth) this would be highly unusual, says Cary Leahey, senior economist at Decision Economics in New York.

The problem is that most businesses would know the sudden buzz in the mall was unlikely to last. Nonetheless, retailers would run down lean inventories and order new stock. This would give a lift to truckers, wholesalers, dockworkers and manufacturers. Many of the goods come from Asia, but part of that money would still flow back to buy components, and perhaps stocks and bonds.

U.S. businesses needing extra help would pull teenagers and the unemployed off their sofas for the summer. If other parts of the economy held up, economists say some 600,000 jobs could be created by the end of the year. Mind you, many jobs would be temporary and up to a third could be overseas, says Wyss.

Reality check

In the ideal scenario, the job growth would create more happy families, more spending and yet more jobs as a result. Stock prices would rise, interest rates and the dollar would stabilize, banks would lend again -- and as the domino effect spread, we could start worrying about inflation.

In the worst scenario, if gas prices, banks and mortgages were still in a funk, the fourth quarter could suffer a dreadful hangover, with comparative GDP diving south of zero as spending dried up. On paper at least, the medicine could look worse than the disease. If spending froze up, the dominoes would fall in a negative way.

More likely though, the soothing effects of interest rate cuts and other federal measures will kick in by autumn. Moderate GDP growth would be possible, though economists worry that a W-shaped recession -- with another big dip in early 2009 -- could ruin the fun.

All in all, a $100 billion spending spree would be good news. It could create hundreds of thousands of jobs. It could shorten the recession. And that would certainly put smiles on the faces of the outgoing Bush administration.

Published April 1, 2008

< previous |  1 | 2 |