Check out all those billions of dollars in U.S. tax rebate checks failing to give June retail sales much of a boost.

The Commerce Department said on Tuesday that total sales at U.S. retailers rose a less-than-expected 0.1 percent in June.  Economists polled by Reuters had forecast total retail sales to rise 0.4 percent in June, following a 0.8 percent gain in May.

Part of the weaker-than-expected results were due to falling demand for cars. Auto and auto parts sales fell 3.3 percent in June — their worst month since February 2006.  But even excluding autos, retail sales rose 0.8 in June, which was below the consensus estimate of 1.0 percent. Excluding autos, building supplies and gasoline, retail sales rose 0.4 percent in June. 

Economists had expected government tax rebate checks to give a bigger boost to retail sales in June, despite the weak overall U.S. economy, as shoppers had excess cash to spend. But last week, major retail chains, like J.C. Penney,  Target and Gap, released their June sales results and many did not see a rebate boost. Penney said it might have received a “modest” sales lift from the checks but any benefit would be “short lived.”

So where did the billions of rebate cash go?

Well, Wal-Mart got a chunk. Its June U.S same-store sales rose at their highest level in years as traffic in its stores jumped. The retailer had offered to cash tax rebate checks for free.

Surging gasoline prices likely gobbled up an even bigger chuck of the rebate dollars. The Commerce Department said gasoline station sales rose 4.6 percent in June as motorists faced higher prices at the pump. Over the past year, gasoline station sales have jumped 24.5 percent to nearly $46 billion last month, on a seasonally adjusted basis.

Charles Grom, a retail analyst with JP Morgan, estimates that every 1 cent increase at the pump, translates into $1.4 billion of lost consumer spending power. “Therefore, the (roughly) $1.00 jump in retail gas year-over-year should more than offset the $106 billion stimulus package,” he wrote in a note last week.

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(Photo: Reuters)

The U.S. government is currently putting $100 billion into consumers’ hands in the form of tax rebates, hoping the fresh cash will stave off a recession.

It’s a plan similar to the once the government followed in 2001, except at that point, the economy was already in a recession.

Back then, the National Bureau of Economic Research said the U.S.  economy entered a recession in March 2001. To get the economy out of its funk, the government passed a stimulus package and mailed out rebate checks over a ten-week period from late July to the end of September 2001, according to research conducted by Thomson Reuters.

When looking at the monthly year-over-year changes, U.S. retail sales started slumping in the beginning of 2001 and reached their lowest level in September 2001, according to the research report. The Thomson Reuters Same Store Sales Index registered a rise of just 0.8 percent in September 2001, but then began to bounce back once the rebate checks were mailed out, with October notching a 1.6 percent gain.

“When comparing the sectors within our retail universe, we find that the discount sector performed the best during the 2001 recession and remained within the 3 percent - 6 percent growth range,” the Thomson Reuters report states. “It registered its strongest same store sales result ever of 9.5 percent in February 2002.”

The report said similar trends are being repeated now as middle class consumers cut back on spending and head to discount stores.

“In 2001, Wal-Mart beat Target’s same store sales results 11 out of 12 months. Today, we’re witnessing a similar trend as Wal-Mart has smashed Target’s comps over the last six months,” the report stated.

During the 2001 economic slowdown, the apparel sector performed the worst and posted its weakest comp ever of -9.5 percent in September 2001, the research shows. It also said the teen apparel group and department stores underperformed and posted sluggish comps during the period leading up to September 2001, but were able to bounce back shortly after.

“If past behavior is a good indicator of future behavior, we are likely to continue to see an increase in consumer spending in the short-term while the 2008 rebate checks are distributed,” the report states. “This in return could help improve the overall economy since consumer spending accounts for about 2/3 of GDP. The discount group is expected to post a 3.1 percent comp, but analysts continue to look for an even stronger 3.5 percent result excluding Wal-Mart.”

(Photo: Reuters)