High oil price threatens to blunt US tax bonanza

With consumers having to pay more at the petrol pump, it is somewhat reducing the impact of the US government's $168 billion economic rescue package, according to Cory Gilchrist, Manager of the Gartmore US Opportunities Fund and the Gartmore SICAV US Opportunities Fund.

"As retailers jostle for the tax-rebate dollars, the recipients of the cheques, up to $600 for individuals and $1,200 for couples, have been adopting a ‘wait-and-see' attitude."

The rising price of oil, recently above $130 per barrel, is a significant factor in the continuing erosion of consumer confidence, notes Cory. The Conference Board Consumer Confidence Index, which had already declined sharply in March, fell further in April and dipped to a 16-year low in May, with rising petrol prices blamed, in part, for heightened consumer concerns. It is also fanning inflation fears.

While the more cautious may choose to use the rebates to pay towards the mortgage or bring down existing credit-card bills, consumers are generally responding in a rational manner when shaping their spending habits. This benefits stocks at the high and low ends of the sector held within the Funds. For instance, the holding in Costco Wholesale, the largest US wholesale club operator, continues to benefit from increased traffic as consumers consolidate shopping occasions and maximise dollars spent.

Nonetheless, expectations are for the fiscal stimulus package to contribute to a rebound in the second half of 2008. "While the US economy is clearly slowing, we characterise the slowdown as orderly in nature. The latest US Gross Domestic Product figure revealing an annual rate of 0.6% in the first quarter exceeded expectations".