By Josh Mitchell
Pandemic aid to households is pouring money into the U.S.
economy, priming it for rapid growth this year.
Household income -- the amount Americans received from wages,
investments and government programs -- rose 10% in January from the
previous month, the Commerce Department said Friday. The increase
was the second largest on record, eclipsed only by last April's
gain, when the federal government sent an initial round of
pandemic-relief payments. Household income has risen 13% since
February 2020, the month before the pandemic shut down large
segments of the economy.
January's increase in household income was almost entirely due
to federal pandemic-relief aid included in a $900 billion stimulus
program signed into law in late December. That package included
one-time cash payments of $600 and a special weekly unemployment
benefit of $300 that the government started sending to
There will likely be more government money flowing into the
economy soon. The Democratic-led House on Friday was expected to
narrowly pass a $1.9 trillion Covid-19 aid bill that would extend
additional pandemic aid, including $1,400 per-person payments for
many Americans. It would then go to the Senate, where Democrats
hope to pass the package through a procedure that doesn't require
votes from Republicans, who have attacked it as too large.
Americans last month spent a chunk of their income, boosting
spending by 2.4%, the first gain in three months. Households spent
broadly on goods, particularly long-lasting big-ticket items.
Spending on services also increased for the first time since
But households also stashed much of the money: Household savings
totaled $3.9 trillion last month, up from $1.4 trillion last
"The levels are off the charts," Joseph Brusuelas, chief
economist at RSM US LLP, said of the cash reserves. "You're going
to see the fuel for a pretty big consumer-led boom this year, which
will spill into next." He expects the economy to grow 6.5% or more
Job growth resumed in January after a drop in December, while
some parts of the economy such as construction, warehousing and
manufacturing have seen increased demand. And higher-income
households, unable to travel or dine out, have built up a high
level of savings.
The next round of stimulus payments could get paid to households
quickly after President Biden signs it into law. The Internal
Revenue Service has shown over the past year that it can get the
bulk of the money into bank accounts within a week or two after
On top of that, the IRS will be sending the regular batch of
refunds during the tax-filing season. Officials expect to issue the
first large wave of refunds to low-income households in the first
week of March.
Other pieces of the pandemic law under consideration in Congress
would get paid out more gradually, including the $400-a-week
supplement to unemployment insurance and monthly advance payments
of the child tax credit that would start as soon as July.
Gross domestic product fell 3.5% in 2020 compared with 2019, the
Commerce Department said Thursday. In a Wall Street Journal poll
earlier this month, economists on average expected GDP to expand
nearly 4.9% this year.
There are big risks that could undermine the economic recovery.
While U.S. residents are receiving the coronavirus vaccine, it is
likely to take months for the country to reach herd immunity,
medical experts say. Another resurgence in the virus could scare
consumers and cause businesses to close or scale back. Even when
the nation does reach herd immunity, many consumers may remain
fearful of venturing out in public, economists say.
Consumer spending is the biggest factor behind growth in the
U.S. Spending soared in the summer, grew modestly in early fall and
then fell the final two months of 2020. The decline at the end of
last year occurred as states and cities ordered businesses to shut
or scale back again, as virus infections resurged, restricting
consumers' ability to spend. Also, the effects of an earlier
stimulus bill passed at the outset of the pandemic faded.
New virus infections have been declining, and several big
states, including California and Texas, eased restrictions in
Scott Molloy, 45 years old, was laid off in August as a senior
project manager for a real-estate developer in San Diego. He
started his own consulting business, restoring some but not all of
Like most Americans, he has cut back on spending during the
pandemic, mostly by not going out to eat or traveling, saving $300
to $400 a month.
But last week, not long after California's governor lifted
dining restrictions, Mr. Molloy went out for burgers and beer with
a friend at a pub near the ocean. And he has planned a trip for
April to drive up to a second home in Oregon, visit relatives in
San Francisco and visit friends in Lake Tahoe. He plans to fly
back. "It will be a full-fledged vacation that I haven't taken in
over a year," Mr. Molloy said.
Such spending will help the economy return to its pre-pandemic
vigor, along with additional recovery in a labor market still
digging out of the hole created by the pandemic. Consumer spending
has held up well during the pandemic, as consumers shelled out more
for goods, particularly long-lasting products such as cars, home
appliances and items purchased online. Many people have also
upgraded their homes.
The services side -- restaurants, nail salons, gyms, airlines --
however, continues to suffer. Services spending is expected to pick
up this spring, as more people get vaccinated.
"People are going to travel more," Lydia Boussour, senior
economist at Oxford Economics, says. "They're going to go back to
restaurants and bars, they'll go back to the gym -- all the things
they basically were not able to do before the pandemic. This is
where you will really see a burst in spending."
Richard Rubin contributed to this article.
Write to Josh Mitchell at firstname.lastname@example.org
(END) Dow Jones Newswires
February 26, 2021 17:20 ET (22:20 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.