Here's How Saved Stimulus Checks Could Help Boost the Economy
By WSJ Noted.
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
2. Spending and rehiring is anticipated as businesses
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
3. More than a third of the first round of stimulus checks were
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.
Read the original article by Harriet Torry here.
(END) Dow Jones Newswires
January 27, 2021 13:14 ET (18:14 GMT)
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