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More Economic Relief on the Way Thumbnail

More Economic Relief on the Way

In addition to the support provided by Central Banks in the way of low interest rates, the second round of COVID-19 relief checks is slogging its way through Congress.  Some economists say this next payment will provide an important lifeline for many families, and that these payments will help stimulate the economy.  Others argue that the stimulus payments and the $600 in extra federal unemployment encourages many who could return to work to stay home.  And they argue that without the additional economic productivity these workers could provide, we cannot achieve a sustainable recovery.  In addition, some argue that these payments are simply put in the bank by many recipients and never get to the economy at all.

Who is right?

Since we are in the middle of a great economic experiment, it may be years before we know.  However, it turns out the U.S. Census Bureau’s Household Pulse Survey for June 11-16 includes actual data on how the CARES Act $1,200 ($2,400 to married couples; with an extra $500 per child) checks were spent.  They collected 73,472 total responses and extrapolated across the population of 160 million recipients.  The government agency estimates that 59% of households used the stimulus check to pay necessary expenses, and another 13% used it to pay off debt.  Only 12% said they have or would save this money.  The first thing this tells us is that COVID-19 relief payments provided important relief to a majority of the households who received aid and was unneeded by only about 10% of the wealthier recipients.

Of the 180 million households who used the check mostly for expenses, 93 million spent at least a portion on housing, either for rent or mortgage payments.  91.3 million spent at least part of their check on utilities.   23.3 million spent some of their stimulus funds to pay down credit card or other debt, including student loans.   The conclusion: many Americans used the government money simply to keep a roof over their heads.

When asked about other expenditures that might have stimulated the economy, the survey found that 56% of households spent some of the relief payments on food, 14% on clothing, 39% on household supplies or personal care products, and just 5.52% on household items.

The survey found that, in aggregate, 70.81% of households that make less than $75,000 a year spent their check mostly on expenses.

A different survey, conducted by economic professors at the Columbia Business School and the University of Chicago’s Booth School of Business, looked at real-time spending data.   They found those in the lowest income group, who earned less than $1,000 per month, spent about 40% of their checks in the first ten days.  Those who earned more than $5,000 a month, meanwhile, spent closer to 20% of the check in that same brief period.  

The group’s report found that most of the funds were spent on food, household items, bill payments, and rent—but interestingly, compared with past stimulus payments, recipients spent about three times as much on food.  Meanwhile, people receiving stimulus checks were much less likely to spend on items like electronics, furniture, or cars.  The conclusion is the same: the “stimulus” appears to have been more of a lifeline than a boost to U.S. consumer expenditures.  The researchers concluded that the increase in unemployment insurance likely had a larger effect on consumer spending per dollar than the stimulus.






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