Originally published by Bloomberg
President Joe Biden has promised to “act fast” in delivering another dose of pandemic relief, including $1,400 checks for millions of Americans. That doesn’t mean all the recipients will be in a hurry to spend the money.
By comparison with the first round of stimulus checks that went out last spring, the payments from Biden’s $1.9 trillion aid bill are much more likely to be saved rather than spent, according to a new survey by Morning Consult commissioned by Bloomberg News.
Change From First Stimulus Check
The survey results are fodder for an intensifying debate about whether government money is going to people who don’t immediately need it. Some of Biden’s Democratic allies are making that case and calling for a more targeted approach as the administration steers its bill through Congress. They want to lower the income ceiling for people to qualify for the full $1,400, currently set at $75,000 for individuals and $150,000 for couples.
But there are potential advantages to a slow-burn stimulus. It could spread out government support over time and avoid the kind of consumer spending stampede that’s led some economists to warn of inflation risks. Federal Reserve Chair Jerome Powell said Wednesday that he doesn’t expect a sustained surge in prices when the economy reopens, even though Americans have built up some savings.
More than one-third of respondents in the Morning Consult survey said they will save a significant amount of the money if they get another stimulus check. That compares with 23% who said they did so in April last year, when the government sent out $1,200 checks under the Cares Act, and 26% of those who got the $600 checks Congress approved in late December.
Third Stimulus Check
While the proportion of people intending to save their third stimulus check was higher among wealthier respondents, topping out at 41% for households earning $100,000 or more, the trend was the same across the income distribution. In households earning less than $50,000 a year, only 17% of respondents said they saved money from the checks last spring—but 29% expect they’ll be able to do so this time.
Share of Respondents Who Report Saving or Intending to Save
Any further savings will add to those that households already accumulated last year. The combination of beefed-up government benefits and a shortage of spending options added some $1.6 trillion to balances over the year, according to the Peterson Institute for International Economics. “A big question is how much, if any, of this dry powder gets spent in 2021,” says Jason Furman, a Harvard professor who headed President Obama’s Council of Economic Advisers. “We have no historic parallel with anything like this level of excess saving.”
Furman expects there’ll be some boost to the economy this year, while part of the powder might also carry over into 2022 and beyond. The economy is on track to expand more slowly than its potential rate through the end of 2021, he says, bolstering the Biden administration’s case for additional aid, but there’s probably room to trim the $1.9 trillion bill without jeopardizing the recovery.
Another way the checks have shored up household balance sheets is by lowering debt. Some 18% of respondents said they’d use money from the next stimulus check to pay off credit card bills, while others cited student loans or other kinds of debt. The figure was broadly similar for the April and December payments, which is why fewer loans have been turning bad across most of the categories tracked by the American Bankers Association. “Federal stimulus payments have been immensely helpful to people trying to meet their financial obligations,” says Rob Strand, senior economist for the ABA. “The low delinquencies we’ve seen since the onset of Covid-19 reflect that.” It’s a contrast with the aftermath of the 2008 crisis, when unpayable mortgage debt weighed on household finances and held back the recovery.
Even with the trend toward higher saving, most of the money is likely be spent fairly quickly. About 30% of respondents in the Morning Consult poll said they would use it to buy food and 22% to pay rent or mortgages. Those numbers haven’t changed much from last year’s initial round of payments—and both are several percentage points higher in the households with earnings of $50,000 or less.
The share who said they would invest in home improvements, a pandemic shopping trend that helped boost the shares of retailers like Home Depot Inc. last spring, held steady at 11%, while those planning to buy clothes dropped to 8% from 11%.
Traditionally, it’s been these kinds of spending, which pump money straight into the economy and stimulate growth in the short term, that politicians have sought as a return on outlays of public cash. But the Biden administration has made it clear that what’s needed in a pandemic is different—better described as relief than stimulus and designed with the longer run in mind.
“We have to make sure we finally get a package through that has the persistence to beat this,” said Jared Bernstein, a member of Biden’s Council of Economic Advisers, speaking at Bloomberg’s The Year Ahead conference in January. “To provide people, not just at the bottom but people at the middle of the income scale, the resources they are going to need in a more lasting sense. And if they save for a few months and then spend later, that’s a feature not a bug.”
Something that might qualify as a bug, and that’s gotten some economists flagging trouble ahead, is if a big chunk of the money gets pumped into speculative investments and contributes to market mania of the type that blew a bubble in GameStop Corp. shares.
Some 6% of respondents in the Morning Consult poll said they would use their checks to invest in the stock market, up from 4% last spring; the figure rose to 11% among the higher-income households.
Financial data-aggregator Envestnet Yodlee has undertaken a more detailed analysis of investment habits driven by the stimulus checks. It found a 51% jump in securities deposits at brokerages among people who got the December round of payments. And in the lowest-income group in the firm’s survey, those earning less than $35,000, the number of new trading accounts more than doubled.