I’m wondering if the “stimulus” packages that have been passed are actually stimulating the economy? Particularly the stimulus checks received by millions of Americans. The theory behind the stimulus checks was that people would spend the money purchasing goods, and thereby stimulating economic growth. But what did people actually do with their stimulus money?
According to the Wall Street Journal article Pen Up Savings Are Expected to Boos Recovery published in the January 27, 2021 Wall Street Journal, 36.4% of the households that received the first stimulus checks saved them. Another 34.5% used the money to pay down debt on stuff they had already purchased. So nearly 71% of the stimulus check money was not used to purchase “stuff” and thereby stimulate economic growth. According to the same article Americans saved $1.4 trillion in the first three quarters of 2020 which is twice as much as the same period of the previous year. That makes obvious sense as the economy was locked down. You couldn’t really go anywhere. Eating out was carry out only. There really wasn’t much to spend money on.
I don’t think that lawmakers understand the fact that when people feel threatened or unsure of their situation, whether physical or financial, they tend to pull in the reins. Since COVID invaded our shores we have felt physically threatened, emotionally drained and uncertain of our financial future as the economy ground to a halt. So our natural reaction is to save our money and hoard necessities. No one is really concerned about spending money on a new TV or computer to stimulate the economy.
Now, when we get COVID in our rear view mirror or at least controlled with vaccines, there will be quite a bit of money that people have saved that should start to work its way back into stimulating the economy. I anticipate a lot of pent up demand for travel, entertainment and other non-essentials that consumers have put off due to COVID. So the real stimulus from the stimulus checks won’t be felt for some time to come.
These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
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