Unquestionably, the $600 direct checks from the December stimulus bill fueled the spending.
We have been predicting for some time that over the next few months as COVID becomes more under control and the weather gets warmer, consumers will unleash all of the trillions of dollars of excess savings they will have and go on a huge spending spree. It appears that this was the first round of spending, but it’s probably just the beginning.
To recap the stimulus programs, in April the CARES act sent out $1,200 checks totaling around $300B, and in December 2020 the next round of stimulus sent out $600 checks totaling $166B. In addition to those direct payments, there have also been huge extra unemployment benefits paid since April. As a result, from April through December of 2020, Americans have saved up approximately $1.5T in excess savings, waiting to be unleashed. Apparently, this latest round of stimulus checks burst the dam, as consumers flooded the economy with $568B of speeding on retail goods and services.
And there’s more to come! Sometime over the next month, President Biden’s $1.9T American Rescue Plan (ARP) will be passed which will include yet a third round of direct payments in the form of $1,400 checks, in addition to extended unemployment benefits. Certainly, income support is needed for those who are still unemployed because of COVID. But given Feb. 17th’s report, perhaps it would be wise to put a pause on the direct payments to see if consumers will continue to spend enough of those excess savings to boost the economy. After all, the government could always provide more stimulus later if needed. Two other arguments for a pause are that there are now signs of inflation bubbling up in the economy, and of course, those direct payments will add to the debt load. But it’s highly unlikely that a pause will even be considered.
Retail sales since before COVID have made a remarkable comeback in most categories, but of course bars and restaurants have been left behind.
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