Part 1: The $600 per week boom (and bust) - how the unemployment stimulus affected consumer spend
Wednesday, September 2, 2020 • 3:00 PM EST
1. Consumers who received the $600 weekly unemployment benefit between mid-April to the end of July, increased their spend significantly more than those who did not receive this benefit.
2. Now that these benefits have expired, those who received the benefit are reducing their expenditures once again.
3. Those who received unemployment benefits spent significantly more on car rentals, apparel and accessories, and education than those who did not receive the $600 weekly supplement.
4. Consumers across the board increased their spend on airlines, lodging, personal care services, and restaurants, from mid-April to the end of July, though the increase was much greater for benefit recipients. Now that the benefits have expired, benefit recipients have reduced their spend to reflect the expenditures of non-benefit recipients.
It is readily apparent that the COVID-19 virus has had a pronounced effect on the American economy. The onset of the pandemic led to widespread job losses, pronounced declines in spending, and a newfound respect for telecommuting.
In mid-April, the federal government signed into effect a package that offered unemployment insurance (UI) benefits to the tune of $600 per week to those who lost their jobs in light of the ongoing pandemic. This sudden cash injection, the administration hoped, would encourage Americans to spend money and jumpstart the lagging economy.
In order to better understand the effects of the $600 per week enhanced unemployment benefit that some Americans received between mid-April to the end of July, we took a closer look at spending data across a number of common categories for American consumers. We were particularly interested in comparing the spending and consumption patterns of Americans who received the weekly benefit (UI beneficiaries) against those who did not receive (non-UI beneficiaries). Our data makes clear that this $600 per week supplement had an effect on spending habits, and consequently, that the recent expiration of these benefits has resulted in yet another inflection point in how much (and where) Americans are taking their paychecks.
Among UI beneficiaries, total spend increased by 93% from the trough in April to the end of July when benefits expired (April 14th to July 28th per index above). In contrast, non-UI beneficiaries’ spend increased only 39% during the same time period. When the weekly benefit expired at the end of July, our data shows a precipitous decline (-9%) in expenditures among US beneficiaries, whereas the spending of non-UI beneficiaries grew (4%). This decline has now brought the spend of beneficiaires near its pre-pandemic levels.
Below are our observations of pronounced differences between the two groups in spending patterns for a few categories. Note, Cardify analyzed spending differences across various other industries, of which the data is available upon request.
Are we there yet?
Among non-UI beneficiaries, spend on car rentals increased 220% from April 14th to August 11th. Spend on car rentals did, however, fall sharply (-12%) in the last two weeks.
But if we examine spend among UI beneficiaries, we observe an even greater desire to take a roadtrip -- spend on car rentals is up 410% from April 14th to August 11th, nearly double the growth of the non-UI beneficiaries. In fact, spend has increased steadily in this category since the beginning of July and the end of these UI benefits do not appear to have an impact on spend in this category thus far.
Check out that ‘fit
Spend on apparel and accessories has increased for both UI beneficiaries and non-UI beneficiaries, but those who received the benefit increased their purchases of these goods significantly more than those who did not. Spend among UI beneficiaries increased 224% between April 14th and July 28th. In contrast, non-UI beneficiaries increased their spend by only 90% in the same time period.
However, the end of July saw a sharp decrease (23%, between July 28th and August 11th) in spending in this category among UI beneficiaries, whereas non-UI beneficiaries spend is mostly flat. In fact, spend in this category for UI beneficiaries has been on a steady decline since the week of July 14th, perhaps driven by consumers bracing for benefit expiration. Today, spend on apparel and accessories is commensurate with levels at the beginning of June.
Investing in the future
Spend on education is particularly interesting to note. Non-UI beneficiaries increased their spend on education by 148% from April 14th to August 11th. On the other hand, UI beneficiaries showed a significantly more pronounced desire to invest in their future vis a vis education, increasing their spend by over 5x (528%) between April 14th to August 11th. This growth in spend on education has not been mitigated among UI beneficiaries since the expiration of the $600 weekly check -- in fact, since the benefit expired (between July 28th and August 1st) spending has increased 52%.
Pronounced changes in other categories
The availability of $600 weekly UI benefit created some sharp divergences in spending habits between those who received their government-issued checks, and those who did not. Above is just a flavour of some of what we believed to be the most interesting differences. For many other categories we saw large spikes in spend for both groups, however the growth in spend was much greater for UI beneficiaries during the mid-April to July period and have since declined in August as benefits expired. This was especially true for the categories of airlines, lodging, personal care services, and restaurants, all categories impacted by shelter in place restrictions. If you are interested in learning more about other spending categories, please reach out to us.
It will be important to keep an eye on American spending habits over the course of the next several months as we head into the holiday season to determine the longevity of the effects of the $600 weekly benefit boon. Stay tuned as we continue to report on this topic. Let’s hope that it was more than just a brief spark!