Economic impact Household payments and spending during the pandemic
Individuals with high exposure to the economic consequences of the COVID-19 pandemic quickly spent their Federal Economic Impact Payments (EIPs) in the early months of the pandemic. However, many other people have saved their payments, contributing to the strength of household balance sheets and, potentially, the demand for purchases and the increase in prices over the past year, suggests a document which will be discussed. at the Brookings Papers on Economic Activity (BPEA) conference on September 8.
The authors—Jonathan A. Parker of the Massachusetts Institute of Technology, Jake Schild and Laura Erhard of the Bureau of Labor Statistics, and David S. Johnson of the University of Michigan—analyze the spending response to three rounds of Congressional-approved payments in March 2020, December 2020 and March 2021.
In the first round, eligible households received $1,200 per adult and $500 per dependent child. In the second round (disbursed as the economy recovered from its deep recession in early 2020), households received $600 for each adult and child. And they got $1,400 per adult and dependent in round three (when vaccines were starting to become widely available).
“From a demand management perspective, unspent EIPs have contributed to the strength of household balance sheets over the past year, a period of strong demand and rising inflation.”
The payments came on top of two more targeted programs: Expanded Unemployment Insurance and the Paycheck Protection Program (aimed at keeping people employed in small and medium-sized businesses). Additionally, the income eligibility limits for the payments were relatively high (e.g., $150,000 for a married couple to receive a full payment), and the payments went to people whose income was unaffected. by the pandemic, such as retirees and people who could work. of the House.
Compared to tax refunds during previous economic downturns in 2001 and 2008, the increase in consumer spending generated by payments has been “significantly smaller” – especially in the second and possibly also the third series of payments, according to the document, Economic impact payments and household spending during the pandemic.
To measure the spending response, the authors use the Monthly Consumer Expenditure Survey, which the Department of Labor uses to construct its Consumer Price Index (CPI). They note that, unlike the recessions of 2001 and 2008 (when primarily demand fell), supply and demand collapsed during the pandemic recession. However, even when the shutdowns eased and vaccines became available, people apparently only spent their payments slowly or saved them as insurance against a possible future change in their economic circumstances, they write.
The third of households most economically exposed to the pandemic (people with low savings or who could not work from home) consumed much faster from the first round of EAPs, in line with payments providing pandemic insurance to some people, the Note of the author.
But they write: “From a demand management perspective, unspent EIPs have contributed to the strength of household balance sheets over the past year, a period of strong demand and rising inflation. “
Together, the three rounds totaled around $850 billion. Meanwhile, CPI inflation in June hit a 40-year high of 9.1% from a year earlier before falling back to 8.5% in July.
“While some households needed the payments to cover economic losses at the start of the pandemic, the fact that on average people spent little of their first payments suggests that a better targeted policy could have been more effective in this direction. that it could have provided more pandemic insurance at a lower cost and without as much excess demand later,” Parker said in an interview with the Brookings Institution.
Parker, Jonathan A., Jake Schild, Laura Erhard, and David S. Johnson. 2022. “Economic Impact Payments and Household Spending During the Pandemic.” BPEA conference project, fall.
Laura Erhard and Jake Schild are employees of the Bureau of Labor Statistics (BLS). The BLS reviewed the research to ensure that the paper does not take a political position and that it correctly and accurately described and analyzed the consumer spending data that the BLS produces and releases to the public. The authors have received no financial support from any company or person for this article or from any company or person with a financial or political interest in this article. The authors are not currently officers, directors, or board members of any organization with a financial or political interest in this article.