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The Consumer Economy Is About to Come Down from Its Sugar High

Regardless of one’s views of the need, adequacy, or effectiveness of the federal response to the pandemic, the relevant consideration of the moment is that government relief for most Americans will be going away soon.

Large retailers mostly reported blowout sales and earnings in 1Q21, and commentators were quick to laud these results and the resilience of consumer spending as a recovery scenario unfolds. Some of these headlines read, “Target Stores ‘Stars of the Show’ in Blowout Quarter,” “Walmart Blows Past Q1 Expectations,” “Amazon Smashes Earnings Expectations Amid 44% Sales Increase,” and “Home Depot in Blockbuster 1Q.” You get the idea. The U.S. retail sector (excluding Amazon) has widely outperformed the broader stock market so far in 2021.

Conveniently underreported in most of these stories was the outsized impact of huge federal stimulus payments on consumer spending. Payments to individuals in March, under the $1.9 trillion American Rescue Plan (ARP), were an astounding $391 billion, with checks going out to some 167 million Americans. ¹ This comes on the heels of the Consolidated Appropriations Act, which paid Americans another $135 billion in January. ²

These latest two rounds of stimulus payments were intended to be a single round of reduced financial relief in late 2020 before a Congressional stalemate on the issue held up legislation until Democrats effectively won control of the Senate in early January and passed the ARP bill by a one-vote margin via a budget resolution procedure.

Though presented as financial relief to struggling Americans, payments to individuals under the ARP was a huge stimulus package paid indiscriminately to most households.

Footnotes:

1: CNBC, May 26, 2021, https://www.cnbc.com/2021/05/26/new-round-of-1400-stimulus-checks-brings-total-sent-to-391-billion.html?&qsearchterm=stimulus

2: Peter G. Peterson Foundation, https://www.pgpf.org/blog/2021/03/what-to-know-about-all-three-rounds-of-coronavirus-stimulus-checks