Stimulus Check Spending: What Makes this Pandemic Different from the 2008 Recession

Stimulus Check Spending: What Makes this Pandemic Different from the 2008 Recession

A comparison of the 451 Alliance’s May 2020 survey on consumer spending with our data reported in April 2008 finds significant variance between how people use money received from government stimulus checks.

More than two-thirds (69%) of current respondents say they will either spend it on consumer goods or save the money – 33 points higher than the 2008 cohort. In contrast, the 2008 respondents favored paying down debt or investing the money by nearly a two-to-one margin, 56% to 29%, over today’s group.

Stimulus or Safety Net?

Direct payments to Americans on the part of the US government occurred three times this century.

In 2001, the government gave most households up to $600 ($875 adjusted for inflation) and in 2008 handed out up to $1,200 per household. The goal in both cases was to stimulate spending among consumers in hopes of propping up a slumping economy.

However, this time around, when the economy has been shut down by design, these checks are less of a stimulus program than a safety net.

On March 27, 2020, US lawmakers enacted a $2.3 trillion economic stimulus package with the goal of relieving the impact of an economic downturn set in motion by the global coronavirus pandemic. Of the $290 billion earmarked for households, $1,200 goes to single people making less than $75,000/year and $2,400 to married couples earning up to $150,000. Families get an additional $500 for each child under 17.

When asked if they expect to receive a COVID-19 stimulus payment, 30% of our survey respondents say they already got their stimulus payment and another 26% expect to receive one.

The full results of the May 2020 survey are available to 451 Alliance members. We examine the broader impact of the pandemic crisis on US household spending patterns and financial decisions in this period of immense flux and uncertainty. See if you qualify to join.


The 451 Take

By illuminating corresponding events in 2020 and 2008, we gain a unique vantage point for evaluating the financial behavior of households in midst of unsettling circumstances.

Our data reveals greater cautionary behavior, as decisions to use stimulus checks for basic goods and savings jump 21 points and 11 points respectively versus 2008. These choices are at the expense of reducing debt and investing the money – both cut in half.

Foremost animating these choices is surging fear over job security, which has soared 42 points since February, 2020. The severity of the COVID-19 pandemic on financial well-being across the spectrum is underscored by findings on individuals in higher income households (>$125,000), which indicate more than one-fifth are now either earning less money (17%) or lost their jobs (5%).

Additionally, nearly one-third (32%) of individuals from these households are spending their stimulus checks on everyday items and another 30% are saving the money. Just as the 2008 rebate checks failed to stop a massive recession, the government checks to help counter the effects of the coronavirus crisis address only a fraction of the challenges required to alter the course of this downturn.

Deeper worries, greater uncertainty steer consumers today

Members of the 451 Alliance are confronting fewer constraints than the overall US population: 6% report they are now unemployed and 15% are earning less money due to the COVID-19 outbreak. However, it’s notable that 17% of respondents in higher income households say they are earning less money since the coronavirus outbreak, four points higher than those earning less than $125,000/year. We find only a two-point difference between the two income levels for those who lost their jobs, with individuals in the lower income group on top 7% to 5%.

These findings suggest that the COVID-19 pandemic is affecting higher income households to a greater extent than is widely believed. At the very least, it’s a sign of the incremental damage being wrought on the US economy with each additional week of curtailment in business operations and disruption to a range of daily activities.

As the table below spotlights, a big change occurs between individuals receiving stimulus checks from April 2008 to May 2020. The current group is hunkering down more aggressively and acting contrary to how those with ample liquidity and confidence in their financial outlook typically behave, signaling distress from sweeping macro forces.

earmarked spending for stimulus check

Most troubling is the high percentage of respondents who specifically cite allocating their stimulus check for basic goods and savings. A closer look at the data reveals that respondents in lower income households are more inclined than those in higher income households to spend on everyday items (37% to 32%) and save the money (36% to 30%). The former also leads in investing the money (15% to 8%).

On the matter of liquidity, it’s unsurprising that more higher income respondents are paying down debt by a 24% to 15% margin. People are likely taking such cautious steps due to their depleted confidence in the economy (net -24) and rising job loss worries (net -18), which have plunged in the last two months and now loom over personal finance decisions.

Separately, our survey data shows a vast majority of the increased spending over the next 90 days versus the previous 90 days will be for groceries (54%) and home repair/improvements (36%). Options are drastically narrowed because people are confined to their homes instead of frequenting restaurants, malls, theaters and stadiums, so it’s understandable that attention on home living is magnified. The degree that spending shifts toward other categories, as restrictions gradually ease in the weeks and months ahead, will be critical as an indicator of economic progress.

It was conventional wisdom in early 2008 that the special tax rebate check would jumpstart the economy. Instead, the recession worsened over subsequent months until hitting the trough in Q1 2009. Our findings had disputed the popular notion that consumers will race out to spend their rebate checks and thereby stimulate the economy. What we described at the time was “an uneasy American public that appeared more predisposed to hunkering down to wait out the current period of economic uncertainty.”

Importantly, our topline reading on the consumer spending outlook in April 2008 was net -17, compared to net -57 in our current survey – down from net -68 last month. During the 2007-09 financial debacle, a low of net -49 was reached several months after rebate checks were issued, in November 2008. They essentially remained at that level until March 2009.

The Great Recession is history, but how the present crisis evolves is undetermined; any recognition of a bottom can only happen well after the fact, and we certainly aren’t there yet.


Coronavirus Flash Survey Results - March 2020