Stored stimulus control is expected to help economic recovery

According to the analysis by Berenberg Economics, Americans saved $ 1.4 billion in the first three quarters of 2020, or about twice as much as in the same period last year. The amount is equivalent to almost 10% of household spending in 2019, estimates Berenberg’s chief economist, Holger Schmieding.

“In this unusual recession, governments were extremely generous, people could not spend the money, and therefore they had the money and the will to spend,” he said. Schmieding said. “Once business restrictions are lifted and people feel safe to go out again, there will be a lot of spending – my guess is that the beaches will be busy, the bars will be busy, and ‘by May and June in full swing,'” he said.

President Biden calls for a new $ 1.9 billion Covid-19 relief package to help Americans cope with the economic shock of the pandemic. His plan includes direct payments of $ 1,400 per person to most households and an unemployment insurance supplement of $ 400 a week until September.

An analysis by the New York Federal Reserve Bank found that consumers put away more than a third of the first stimulus checks sent to households as part of the $ 2 billion Care Act enacted in March last year. Just under a third of the stimulus payment, 29%, was spent, while 36% was saved and 35% paid debt. The survey also found that consumers expected to spend an even smaller portion of future stimulus payments, and use a higher portion to pay off debt.

Marcus Prouty said he put his first $ 1,200 stimulus check in savings because he was “slightly scared of what might happen” after losing his job as a chef in March. Mr. Prouty, 25, a student in Boise, Idaho, spent the following months in the ministry. He has received unemployment benefits and hopes to get a new job this spring when he expects businesses to start working again.

“I saved enough money where I could buy necessary things, ‘like a new laptop,’ but most of my money goes to food and rent, ‘he said. He has spent his recent $ 600 stimulus test in savings and hopes – to prevent an unexpected emergency – to spend it on a vacation in California as soon as he gets vaccinated against Covid-19.

The economic downturn caused by the Covid-19 pandemic differs from a typical recession that leaves consumers’ funds and businesses wary to re-engage as demand slowly recovers. In some sectors, job losses were severe, especially in service industries such as pubs and restaurants. But once the vaccines become more widespread and demand for services increases, economists expect employers in high-turnover sectors, such as pubs and restaurants, to re-engage quickly.

Demand for services such as haircuts, movie tickets, hotel accommodation and elective medical procedures has been curtailed by the pandemic, and spending on services remains below pre-pandemic levels. Because non-essential businesses are closed in many regions or work with limited capacity, consumers have not been able to spend their money as freely as before – and many have saved it instead.

The personal savings rate, the share of after-tax revenue that eliminates U.S. consumers, was 12.9% in November, according to the Department of Commerce. This can be compared to a saving rate of 7.5% in November 2019, before the pandemic.

James Sweeney, chief economist at Credit Suisse, says the economic outlook for 2021 has risen significantly after Congress approved the second round of stimulus payments at the end of December. “The U.S. household sector appears to be in good financial condition,” he said.

Economists expect an increase in spending this year to push inflation slightly higher, but Federal Reserve officials will not worry about it after years of weak price pressure.

Gregory Daco, chief economist at Oxford Economics, said the Fed “would welcome even more signs that increased activity would lead to moderate inflationary pressures in line with or above its 2% inflation target.”

Households with lower incomes are more likely to issue their checks immediately. Consumers with less than $ 100 in their bank accounts spent more than 40% of their stimulus payments within the first month, while individuals with more than $ 4,000 in their accounts barely spent a cent, according to a recent study by the National Bureau or Economic Research has been published.

Saving was still no option for Wendy Hartigan, 65, of Philadelphia, who described government assistance as “the only thing stopping me from being on the streets.” She lost her job at a daycare center when it was discontinued in March. She then started collecting unemployment benefits and received her first incentive payment of $ 1,200. Her $ 600 check arrived in early January.

“It’s hard, it’s not nearly enough, it’s coming into my account and going out the next day, I could not save anything from it,” said Ms. Hartigan said, who used the checks for bills, groceries and to pay for the room in the residential hotel where she now lives.

Mrs. Hartigan has an event planning business that is mostly focused on weddings, but the pandemic has shut down much of the industry. Two weddings she would have planned last year have been postponed.

“This year is still in the air, brides are still scared,” she said. “I’m really stuck, I’m sitting between a rock and a hard place.”

Write to Harriet Torry by [email protected]