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COVID-19

Will the relief package boost consumer spending in 2021?

Marielle Segarra Dec 31, 2020
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Women carry shopping bags while walking in Georgetown on Dec. 23, 2020, in Washington, D.C. Alex Edelman/AFP via Getty Images
COVID-19

Will the relief package boost consumer spending in 2021?

Marielle Segarra Dec 31, 2020
Heard on:
Women carry shopping bags while walking in Georgetown on Dec. 23, 2020, in Washington, D.C. Alex Edelman/AFP via Getty Images
HTML EMBED:
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Consumer spending accounts for nearly 70% of U.S. economic activity. And over the past couple months, spending has been trending down. The hope is that the relief package just passed by Congress will reverse that downward slope in the new year. Is that likely?

Well, when Congress passed the first relief bill in March, it worked … eventually.  

“The passage of the CARES Act drove an increase in consumer confidence, and that, in turn, translated into an increase in consumer spending,” said John Leer, an economist at Morning Consult. “But it took a few weeks for that effect to play out.”

It takes time for the checks to hit people’s bank accounts, for states to distribute the unemployment benefits and for people to spend the money.

Leer expects the same this time around.

Also the government is giving people half as much money this time, so he expects any bump in consumer spending to be smaller.

Keep in mind: This moment is still looking bleak. The virus is more widespread than it was in the spring. The vaccine rollout is taking longer than expected.

“I think that all of those things together are going to make everyone, make consumers more wary about going out and spending their $600 paychecks right away,” said Sonia Lapinsky, managing director at Alix Partners.

The relief package will help a lot of families that have lost jobs this year, but ultimately, this money is a bridge until the virus is under control, said Gregory Daco, chief U.S. economist at Oxford Economics.

“What you need to see in order to have a strong and sustainable economic recovery is a strong and sustainable health recovery,” Daco said. “And that will only come gradually over the next few months.”

COVID-19 Economy FAQs

What are the details of President Joe Biden’s coronavirus relief plan?

The $1.9 trillion plan would aim to speed up the vaccine rollout and provide financial help to individuals, states and local governments and businesses. Called the “American Rescue Plan,” the legislative proposal would meet Biden’s goal of administering 100 million vaccines by the 100th day of his administration, while advancing his objective of reopening most schools by the spring. It would also include $1,400 checks for most Americans. Get the rest of the specifics here.

What kind of help can small businesses get right now?

A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.

What does the hiring situation in the U.S. look like as we enter the new year?

New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.

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