When the US Congress rushed through the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act in March, they were trying to stave off the potentially devastating economic consequences of COVID-19 shutdowns. They hoped that issuing Treasury checks would help people with immediate needs, such as food, but also spur spending by businesses and individuals.
But the stimulative boost was likely less than intended, according to University of Texas’s Olivier Coibion, University of California at Berkeley’s Yuriy Gorodnichenko, and Chicago Booth’s Michael Weber, who find that the vast majority of Americans saved the bulk of their checks or used the money to pay down debt. Only 40 percent of the money went toward purchases, and most in industries that needed the least help.
However, the research also finds that the stimulus payments helped some people without jobs search harder for work.
The researchers base their findings on an analysis of a detailed, 16-question national survey in July 2020 of 12,000 participants in the Nielsen Homescan panel, a long-running representative sampling of consumers who track their daily purchases.
Their study reveals that only one in seven Americans—or just under 15 percent—reported spending or planning to spend most or all of their government checks. Half said they were using them to pay off debt, and 33 percent put the money into savings.
When people spent or planned to spend the funds, it was in sectors that least needed additional support, such as food or personal-care products. By summer 2020, these industries had already experienced fillips from Americans stocking up in response to lockdowns. The stimulus checks did little to prompt people to buy bigger-ticket items such as cars or appliances or to book flights or hotels.
The proportion of savers to spenders and debt payers was roughly consistent with past stimulus efforts, the researchers find. For example, with the 2001 tax rebates, between a fifth and a quarter of Americans said they mostly spent the money, according to a study by University of Michigan’s Matthew D. Shapiro and Joel Slemrod. In research on the 2008 tax rebates, Claudia Sahm, formerly at the Federal Reserve, along with Shapiro and Slemrod, also finds that only a fifth of survey respondents said they spent the funds.
The July 2020 survey revealed Americans planning to spend an average of 40 percent of their relief checks—lower than the 50–90 percent of the 2008 tax rebates. At the same time, there were stark differences among households, the researchers report.
“Many spent their entire stimulus payment, and just as many saved their entire check or used it to pay off debt,” they write. Men and Hispanics were more likely than the average respondent to spend. Black respondents were more likely to pay off debt. That was also true of liquidity-constrained respondents, defined as people who said they would struggle to cover an unexpected bill equal to one month of their after-tax salary. People whose earnings fell because of COVID-19 tended to use more of their checks on spending.
Coibion, Gorodnichenko, and Weber also investigated how the checks might affect the labor market. They find that 20 percent of people out of work report that the check led them to search harder for a job.
Part of the argument against another relief act has been that giving people money deters them from looking for work. However, “contrary to demotivating this group, the checks might have meant they now had money for babysitters or transportation, the sort of things you might need in order to find a job,” Weber says.
As for the checks’ limited success in spurring spending, the relief measures were up against a big challenge in the form of lockdowns, which damped the ability to, say, dine out or the desire to book a holiday package. But uncertainty related to the pandemic may also have played a role—as might have the mechanism of one-off payments itself.
There may be a limit, the researchers write, “on how much stimulus can be generated through direct transfers to households. In the face of large crises, government may want to consider a broad range of policies targeting aggregate demand.”