by Jharonne Martis.
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.
Exhibit 3: Refinitiv Retail Earnings Growth Rate: 2019 – 2021
Source: Refinitiv I/B/E/S
Rising personal savings
Personal savings rates are up, according to the U.S. Bureau of Economic Analysis. The economic indicator was 7.6% at the beginning of 2020, then skyrocketed to new highs at 33.7% in April 2020 during the pandemic. The savings rate dropped as consumers gradually increased spending during the summer of 2020 and into Amazon Prime Day. However, the personal savings rate is still high at 12.9% as of December 2020.
The personal savings rate has also risen during previous economic slowdowns. In the midst of the global Great Recession (December 2007 – June 2009) several financial institutions fell and unemployment rose significantly, causing many Americans to hold back spending. They also increased their savings during the recession as they were worried about job security, pushing up the U.S. personal savings rate.
Exhibit 4: U.S. Personal Savings Rate
Source: Refinitiv Datastream
Spending the stimulus check
There are more than 10 million Americans unemployed and they are most likely to spend their stimulus checks on basic living expenses.
The survey also shows that those who plan to spend their stimulus money will do so for other personal expenditures and goods and services. They mainly plan to put the money towards basic living expenses, groceries, rent and mortgage (Exhibit 5). Others plan to renovate their home, upgrade their vehicle and spend on travel. Refinitiv discovered this in a collaboration with Maru/Blue Public Opinion, a panel and data service insight firm. The findings and detailed tables can be found here: https://www.marublue.com/american-polls.
Exhibit 5: Spending Plans for Stimulus Money