In response to the COVID-19 crisis, the U.S. government approved a $2.2 trillion package last spring to stimulate the economy. Under this act, the government sent checks for $1,200, plus $500 per dependent child, to most Americans who fit the criteria. A new report by the National Bureau of Economic Research (NBER) aims to uncover how recipients spent that money, and we're sharing the highlights so business owners can see if any of the cash went into their industry.
Background: Amidst the rising spread of COVID-19 and the pervasive imposition of lockdowns in March 2020, the U.S. federal government passed the CARES (Coronavirus Aid, Relief, and Economic Security) Act on March 27, 2020. This stimulus package allocated $2.2 trillion, part of which went toward sending out stimulus checks. Those with annual incomes under $75,000 received either $1,200 (for single tax filers) or $2,400 (for joint filers) stimulus payments with an additional $500 for each minor dependent. Couples who filed jointly and made less than $150,000 got a one-time $2,400 check (plus another $500 per child).
How Consumers Spent and Invested
A recent report by the NBER published in August 2020 reveals how one-time transfers to individuals from the CARES Act affected consumers’ spending and investment patterns. This survey was conducted on individuals participating in the Nielsen Homescan panel, which included 80,000-90,000 individuals who tracked their purchases daily. Following are the major findings from the report.
- 33 percent of the respondents said they saved the payments, while 52 percent used the money to pay down debt.
- Only 15 percent of stimulus check recipients say that they spent (or planned to spend) most of their funds, with most of that spending going to food/beauty/personal products and other consumer goods.
- Americans with mortgages spent 15 percent more of their stimulus checks to pay off debt than those without mortgages. The latter instead save more and purchased more food or personal products as well as other consumer products.
- The spending of stimulus checks increased by 29 percent of the stimulus amount in the 10 days after receiving payment, mainly driven by food and non-durables.
- Seven percent of the spending went to large durable goods, such as houses/apartments, cars, large appliances and electronics.
- About 16 percent of spending went to food and personal care products.
- Almost six percent was spent on medical care, including health insurance, out-of-pocket medical bills and prescription drugs.
- 13 percent of respondents said that they spent the funds on other consumer products.
- More than 50 percent of respondents received $1,200, while almost 15 percent received $2,400.
Spending Patterns Vary
Asked during the survey how they had received their payments from the CARES Act, 80 percent of respondents told NBER they had gotten the money via direct deposit, while the remainder received checks. Some general patterns were observed among stimulus payment recipients from the survey, as follows.
- Lower-income households were more likely to spend their stimulus checks, as were households facing liquidity constraints and groups with lower educations.
- Additional factors that made individuals more likely to spend their payments included being out of the labor force and not owning or renting their own homes (such as living with parents).
- African-Americans were more likely to report using their checks primarily to pay off debt, as were those with mortgages, unemployed workers and those reporting to have lost earnings due to COVID-19.
- Older respondents were more likely to pay off debts and a little less likely to save their payments than younger households.
- More educated individuals were more likely to save their payments, as were those who received larger payments.
Stimulating the Economy
The report found that the stimulus package was a good initiative by the U.S. government, but was not able to stimulate the economy as expected due to the following reasons:
- There was less scope for spending on the part of consumers.
- Few restaurants were operating at full capacity.
- Many bars and shopping outlets were closed.
- Recreational activities were curtailed, and travel options were limited.
- The closing of offices and widespread lockdowns reduced the need for transportation.
To read the entire report, visit the NBER website.