WASHINGTON — The millions of economic stimulus payments gave a massive jolt to household finances in May, sending after-tax incomes up by the largest amount in 33 years.
The payments helped boost consumer spending by the largest amount in six months.
The Commerce Department reported that disposable incomes, the amount left after paying taxes, surged by 5.7 percent last month. It was the biggest increase since May 1975, reflecting $48.1 billion in rebate payments made last month. The surge in incomes helped boost consumer spending by 0.8 percent, the biggest gain since last November.
The administration hopes the $106.7 billion in stimulus payments being made this year to 130 million households will be enough to offset the serious drags on the economy from a prolonged housing slump, a severe credit crisis and soaring energy bills.
Economists, however, are worried that the boost will be only temporary and once the checks are spent, the risks of the economy falling into a deep recession will increase.
A separate survey of consumer confidence released Friday gave support to those concerns. The University of Michigan Index of Consumer Sentiment dropped to 56.4 in June, the lowest reading in 28 years and a stark reflection of all the problems facing the economy at the moment.
“Surging gas prices, high food prices, disappearing jobs, declining home values and record foreclosures were cited by consumers as the basis for their pessimism and most consumers expected each of these problems to continue to worsen in the months ahead,” said Richard Curtin, director of the survey.
Worries about the economy showed up in turbulent financial markets this week, with the Dow Jones industrial average plunging by nearly 360 points on Thursday to the lowest level in almost two years.
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