Here’s How Saved Stimulus Checks Could Help Boost the Economy
Thanks to federal stimulus checks designed to provide relief to households impacted by the Covid-19 pandemic, some Americans are stowing away more cash than they normally would. Americans saved about twice as much — $1.4 trillion — in the first three quarters of 2020 as they did in the same period of 2019, according to analysis by Berenberg Economics. This phenomenon is expected to spur the economic recovery in the U.S.
1. More money, fewer places to spend it.
The latest federal Covid-19 aid package sent $600 checks to many households that also received relief money last year. More affluent households have also saved up cash by curbing their spending during the pandemic. Many restaurants, stores, and service-oriented businesses have been closed or operating at limited capacity during the pandemic, leading some consumers to spend less than they typically would on things such as haircuts, travel, movie tickets and more. This means they will have more money to spend down the road.
2. Spending and rehiring is anticipated as businesses reopen.
The economic downturn caused by the Covid-19 pandemic is different from a typical recession that leaves consumers low on funds and businesses cautious to rehire as demand recovers slowly. While job losses have been severe in some sectors, particularly in services industries, once vaccines are distributed more widely and demand for services picks up, economists expect employers in high-turnover sectors like bars and restaurants to rehire quickly. “In this unusual recession, governments have been unusually generous, people haven’t been able to spend the money, and hence they have the money and will to spend,” says Berenberg’s chief economist, Holger Schmieding. Once business restrictions are lifted and people feel it is safe to go out again, “there will be a lot of spending — my guess is the beaches will be crowded, the pubs will be crowded” and, “by May and June it will be in full swing,” he said.
3. More than a third of the first round of stimulus checks were saved.
Of the first round of stimulus checks under the Cares Act, consumers saved 36%, spent 29% and used 35% to pay down debt, according to an analysis by the Federal Reserve Bank of New York. The survey also found that consumers expected to spend an even smaller share of future stimulus payments, and use a higher share to pay down debts. President Biden is calling for a new $1.9 trillion Covid-19 relief package to help Americans weather the economic shock of the pandemic. His plan, which so far is meeting resistance from Republicans, includes $1,400-per-person direct payments to most households and a $400 weekly unemployment insurance supplement through September.
4. Not everyone can afford to save the payments.
Lower-income households are more likely to spend their checks straight away. Consumers with less than $100 in their bank accounts spent over 40% of their stimulus payments within the first month, while individuals with more than $4,000 in their accounts barely spent a dime, according to a recent study published by the National Bureau of Economic Research.
Source: Dow Jones