COVID-19 Stimulus Payments Inspire Saving Over Spending

The U.S. government is sending out another round of checks meant to stimulate economic activity during the coronavirus pandemic. Nearly half (44%) of U.S. recipients plan to save the money, Refinitiv discovered in a collaboration with Maru/Blue Public Opinion (Exhibit 1). About one-third (36%) of Americans will pay off their debts, while 20% will spend the funds.

Exhibit 1: How Americans Plan to Use Their Stimulus Check

Increasing national debt

The federal stimulus programs are coming at a cost as the deficit and national debt have risen significantly. At the end of Q4 2019, the United States public debt-to-GDP ratio was at 106.7%. This increased even further to 127.3% at the end of Q3 2020.

The Cares Act, coronavirus pandemic-related costs and relief measures have brought the U.S to the highest public debt levels seen in more than 70 years. Meanwhile, interest rates have been low, allowing the government to borrow at near zero percent. Experts agree, however, that the stimulus programs implemented were necessary to avoid an even worse economic crisis.

Exhibit 2: United States Public Debt-to-GDP Ratio

Source: Refinitiv Datastream

The program was intended to fuel economic activity by consumers. However, a large proportion of Americans are telling us that they will be saving their stimulus checks instead, followed by paying off debt. Therefore, they are not directly putting the money back into the economy.

The survey shows that one in five Americans intends to spend their stimulus check. 2020 was a challenging year for retailers, as they experienced negative earnings growth (Exhibit 3).

The Refinitiv earnings forecast suggests Q1 2021 will mark the first positive quarter in over a year, as retailers will be facing much easier year-over-year comparisons. Still, among the consistent strongest sectors, Household Durables, Internet & Catalog Retail, and Leisure products are expected to see positive earnings growth in Q1 2021 — and perhaps even receive a boost from stimulus check spending.

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