A fresh round of COVID-19 related stimulus checks arriving to mailboxes soon — smaller than the ones from the Coronavirus Aid, Relief, and Economic Security (CARES) Act doled out at the start of the pandemic — may do nothing more than plug the finances of struggling U.S. households as opposed to unleashing a consumer spending boom that sustainably digs the economy of its current ditch.
“I think a lot of people have to pay rent. A lot of people want to buy food. Yeah, sure there could be some purchases at department stores, but I think basic necessities are more crucial here,” AGF Investments Chief U.S. policy strategist Greg Valliere said on Yahoo Finance Live. “I think because of that we are looking at a very mediocre first quarter. The good news is the first quarter will not go into recession because of this bill.”
As part of a new $900 billion COVID-19 relief package inked this week by lawmakers, single people earning up to $75,000 will receive a check of $600. Married couples bringing in $150,000 will get a check of $1,200. Both amounts are half of what was paid out directly to folks in the CARES Act.
Unfortunately for many U.S. households, since the initial round of stimulus checks went out the economy has continued to tread water at best.
Among other aftershocks of the raging pandemic, layoffs at big corporations such as Disney persist given limited visibility into the COVID-19 economic recovery in 2021. Thousands of restaurants and retailers have closed, causing a ripple effect throughout the economy. People infected with the virus have missed out on work as they nurse themselves back to recovery. The financial effect has been worse for entire families being inflected with the virus.
All of these factors have put households in dire financial straits entering the new year.
The number of poor people rose by some 8 million from May of this year to September, according to a new Columbia University study and The New York Times.
The CARES Act lifted more than 18 million people out of monthly poverty in April, Columbia’s paper found. But, the number plunged to about 4 million people in August and September following the expiration of the $600 per week unemployment top up.
And with dire financial straits comes little desire on the part of consumers to spend on non-essential goods, to Valliere’s point. In fact, households were already in the mindset to spend any new stimulus check cautiously ahead of this week’s actions by lawmakers.
More Americans would put new stimulus checks toward improving their personal balance sheet than spending frivolously at Best Buy, Walmart, Target and various malls, suggested findings in a new Yahoo Finance-Harris Poll survey taken in late November.
About 53% of people surveyed would take the money and pay down bills, 43% said they would use it for necessities, 39% are inclined to rebuild personal savings and another 30% are keen on using the funds for their rent/mortgages. Only 22% polled said they would spend new stimulus checks on holiday gifts.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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