Many consumers spend early rebates on soaring cost of living

Most individual taxpayers are getting checks of up to $600, while couples receive $1,200 plus $300 for each eligible child under 17. People earning too little to pay taxes but at least $3,000, including seniors whose only income is from Social Security, get $300 if single or $600 if a couple. And there are no payments for the wealthy: The amount starts to phase out for those with incomes over $75,000, or $150,000 for joint filers.

Based on economists' preliminary assessments, and echoed by the AP sample group of more than two dozen people, Americans are not hesitating to spend the money — but more for essentials than was anticipated. It's easy to understand why: Gas prices are up more than 30% since the rebate check amounts were first announced and food prices are projected to increase 5% or more in 2008.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank, thinks at least half the rebate money may go toward energy costs alone.

"It's not going to give you the bang for the buck as originally envisioned," he said. "The odds of it having a longer-lasting impact on the economy are less. ... People were not planning to use so much of it on energy and food."

Diane Swonk, chief economist for Mesirow Financial in Chicago, also estimates that consumers will spend more than half of the rebates — but much of it on the higher cost of living, citing evidence of a "very stressed consumer."

That would be dramatically higher than what they signaled in an Associated Press-Ipsos poll in February, when only 19% of respondents said they would spend their rebates. Some 45% said they planned to pay off bills, 32% said they would save it or invest it, and 4% said they would donate it to charity. Consumers in the past have tended to spend significantly more than they told pollsters they thought they would.

Swonk says economic growth won't be affected by where people spend it — but consumer confidence will, which can influence the longer-term outlook. Over the long haul, spending on staples won't provide the boost the government hoped for.

Millions of Americans can testify to the psychological impact of a fat check, whether or not they agreed with the idea.

"Honestly, I think it's kind of silly that the government is paying us money when it's having such a hard time paying its own bills," said Jackson. "But shoot, who's going to turn down money when they give it to you?"

'We're definitely in a recession'

Some economists are now saying we will avert a recession, or at least a severe downturn. Don't tell that to people who have seen their living standards squeezed by the markups in supermarkets and at the pump — like Church, who's raising six children on Chicago's often hardscrabble West Side.

"We're definitely in a recession — I can feel it," she said over a sandwich in the cramped, bustling offices of the weekly neighborhood newspaper where she is a lifestyles and religion writer. "We get so much less for the same money. Milk and eggs and bread and vegetables and fruit are all very expensive. So the rebate was a good idea for that."

Being pinched didn't prevent Church and her husband from contributing $120 of her $1,200 rebate to their church — they tithe 10% of everything they earn, in good times and bad.

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