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Unemployment/Stimulus check

The Stimulus Checks Have Been A Lifesaver Or A Windfall



The economic and personal impacts from the coronavirus have been horrific. Over 47 million people have filed unemployment claims and almost 40% of the people who make under $40,000 per year have lost their jobs according to the Federal Reserve. This has led the Federal government to quickly distribute hundreds of billions of dollars in direct payments to individuals and companies, along with loans to small to large businesses.

These payments have been a lifesaver for those laid off and have little or no savings. The $1,200 stimulus checks and extra $600 per week in unemployment benefits have allowed them to pay rent, put groceries on the table or pay medical bills.

On the other hand, for those who still have jobs or have not been impacted by the downturn in the economy, a large portion have saved the windfall as can be seen in the increased savings rate. It has risen from 8.4% in February to a high of 32.3% in April, before falling back to 23.3% in May.

Federal Reserve Covid-19 impact survey

In the first week of April the Federal Reserve did a survey to capture information about the impact from Covid-19. It found:

  • Job losses were most severe among workers with lower incomes. 39% of people working in February with a household income below $40,000 reported a job loss in March.
  • 13% of adults indicated that they lost a job in March 2020, and an additional 6% said that they had their hours reduced or took unpaid leave.
  • Among those who lost a job in March 2020, 91% anticipated that they would return to work for the same employer or indicated that they had already returned to work. (Note that there had “only” been 10 million unemployment claims as of the end of March vs. a total of over 47 million by June 20.)
  • 18% of adults did not expect to be able to pay all of their April bills in full. Among those who lost a job or had their hours reduced, 35% did not expect to be able to pay all bills in full.
  • For those not experiencing an employment disruption, financial outcomes at the time of the supplemental survey were largely similar to those observed in the fourth quarter of 2019.

Stimulus payments were two to three times the amount of lost wages

The U.S. Bureau of Economic Analysis releases a monthly report on wages, spending and savings. In analyzing the numbers it is easy to see that on an annual basis wages fell over $1 trillion from $9.6 trillion in February to $8.5 trillion in April or down 11% and rebounded a bit in May to $8.7 trillion, down 8.6% compared to February. On an annualized basis wages are down over $800 billion from February to May.

To help American’s survive the sudden shutdown of the economy the government sent out $1,200 stimulus payments and added $600 per week to unemployment claims. These allowed for those who had been laid off or seen their work hours reduced to pay for essentials such as groceries or rent.

Unemployment insurance payments increased from $26 billion in February on an annualized basis to $453 billion in April and to almost $1.3 trillion in May.

What is categorized as “other government social benefits” skyrocketed from $528 billion on an annualized basis in February to over $3 trillion in April before falling back to just under $1.2 trillion in May.

When the increased government payments are netted against the lost wages the difference has risen to over a trillion dollars of extra total income on an annualized basis.

  • March: $51 billion
  • April: $1.99 trillion
  • May $1.1 trillion

This has led to a spike in savings

While there was an income level where the $1,200 stimulus checks were reduced and then eliminated, they still went out to tens of millions of people who had not lost their jobs or had enough savings to soften the blow from lost or reduced income. Many of these individuals put the funds into savings.

Additionally, consumers made drastic cuts to spending. Most of this was forced as stay at home orders went into full effect in April with some reductions in May. While outlays for durable and non-durable goods each fell by over $300 billion on an annualized basis in April vs. February and saw them almost come back to February levels in May, it was Services being pummeled by over $2 trillion in April and a small rebound to $1.6 trillion in May that took the brunt of the hit.

The combination of more money in peoples pockets due to huge government payments and dramatically lower spending has led to a spike in the savings rate. It has gone from:

  • February: 8.4%
  • March: 12.6%
  • April: 32.2%
  • May: 23.2%

The increase in savings could flow back into the economy if people start to feel more confident about the coronavirus and their outlook for their employment situation and the economy. However, if Covid-19 cases and eventually hospitalizations and deaths significantly increase, individuals may continue their conservative spending habits and hang onto the money.

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