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Stimulus checks distributed earlier this year under the CARES Act had only a modest impact on consumer spending, according to a new report from the National Bureau of Economic Research.
U.S. households report spending about 40 percent of their checks, saving 30 percent and using another 30 percent to pay down debt. These percentages are similar to direct transfer payments during economic downturns in 2001 and 2008, although amount of the 2020 payments was much larger.
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The authors of the report offer two explanations for why Americans didn't spend more. First, there were fewer business, recreational and travel options for spending because of lockdowns caused by the pandemic. Second was the law of diminishing returns — the larger the stimulus check, the less likely recipients are to spend it.
Researchers found several spending patterns:
- Large households leaned toward spending most of the money.
- Seniors tended to pay down debt, while younger and more-educated households were likely to save.
- People who were out of the labor force or who lived with their parents were more likely to spend.
- African Americans were more likely to pay down debts, and Hispanics were more likely to spend.
- Households that reported being unable to cover a bill equal to their monthly income were no more likely to spend than individuals without financial constraints. Instead, they were likely to pay down debt.
Data suggest the stimulus payments had little impact on job-seekers. Among unemployed individuals who received the payment, two-thirds said it had no effect on their job-search decisions, and more than 20 percent reported that the stimulus actually caused them to look harder for a job
Researchers said the study suggests there is a limit to how much stimulus can be generated through direct payments to households. In the face of large crises, decision-makers may want to consider a broad range of polices targeting aggregate demand, with direct transfers being only a part of the fiscal policy response.
Find the complete report, "How Did U.S. Consumers Use Their Stimulus Payments?" at the NBER site.
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Alan Goforth
Alan Goforth is a freelance writer in suburban Kansas City. In addition to freelancing for several publications, he has written a dozen books about sports and other topics.
