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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Pogeu Mahone who wrote (5468)	1/19/2004 6:53:40 PM
From: ild	Read Replies (1) of 110194

From 12/4/03 ContraryInvestor: It has been estimated that household income tax refunds in early 2004 will range somewhere around $60 billion ahead of what otherwise might have been the case due directly to the lowering of personal income tax rates that began in July of this year. Unless employees made immediate changes to their tax withholding choices in 2003, they have essentially overpaid taxes for the first six months of the year. For those eligible, those refunds should arrive in consumer mailboxes during latter 1Q and early 2Q of next year. We believe this is important in terms of another potential jolt of liquidity flowing through the household sector. The sharp folks at Merrill Lynch estimated that 80% of cash tax rebates received by folks this summer went directly into consumption during 3Q. In terms of real final sales in 3Q, personal consumption accounted for 60% of the total number. 80% of the assumed "excess" tax refunds to come in early 2004 should total approximately $40 billion. That might not sound like a big number, but let's put it in a bit of perspective. $40 billion was 40% of the total nominal quarter over quarter growth in GDP during 1Q of this year, 35% of nominal 2Q GDP growth, and 15% of the blow out 3Q nominal GDP growth number. $40 billion is not quite as inconsequential as it may sound when it comes to quarter over quarter nominal GDP expansion. During 2003, the cash tax rebates and lowering of personal income tax rates certainly acted as a counterweight to the fact that the labor markets have been sluggish at best. We'll get one last blast of consumer related stimulus in the form of excess tax refunds in early 2004. Beyond that, it seems pretty clear to us that consumers are going to need to experience growth not only in payroll employment, but in wages and salaries. So far, that's just not taking place in a meaningful manner.

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