Stimulus checks worked, many retailers say, but bump short-lived

Americans lined up to buy products from supermarkets like Costco Wholesale and Walmart, fearing the COVID-19 pandemic in New Jersey, United States, April 18, 2020.

Tayfun Coskun | Anadolu Agency | Getty Images

During the call for Walmart profits Tuesday, CEO Doug McMillon said the big box retailer went through different phases of shopping during the coronavirus pandemic.

First, he said, customers have stored essential food and household items. They later searched for items that helped them work, learn, and have fun for long days at home.

In the last weeks of April, another trend emerged: customers bought more TVs, clothes, sporting goods and toys with money than they received from stimulus checks from the US government .

The stimulus checks were part of a historic $ 2 trillion rescue package adopted in March. By issuing checks, the government aimed to stimulate consumer spending to boost the economy after the coronavirus pandemic stopped it. The government has sent millions, up to $ 1,200, depending on income level. (People earning more than $ 99,000 a year did not receive a check at all.)

The checks seem to have had the desired effect. In particular, they helped increase purchases of non-essential items that people had left behind at the start of the pandemic.

For example:

  • Apple CEO Tim Cook said on the tech company’s earnings call that he had also seen “a really widespread increase” in the second half of April and had given some credit recently deposited stimulus checks.
  • Target CEO Brian Cornell has seen a noticeable increase in discretionary spending fueled by additional funds in client pockets. Cornell said there was a resurgence in sales of clothing, cosmetics and other discretionary items.
  • Best Buy CEO Corie Barry said on a first quarter earnings call that the company posted strong sales growth in late April. “Like many other retailers, we saw a profit in sales in the last three weeks of the quarter, as customers no doubt chose to spend some of their government stimulus money on the products and services we offer” said Barry. In particular, there have been bumps in computers, games and small devices, the company said.
  • Lowe’s CEO, Marvin Ellison, said the retailer had seen indicators that the checks had spurred the sale of home improvement items. “We have certainly seen an increase in sales, an increase in ticket transactions and our company has certainly responded to it,” he said.
  • The Home Depot said the stimulus funds have contributed to the already large increase in sales of paint and DIY supplies.

Fast food restaurants, which depend on discretionary income, have also seen an effect:

  • Chipotle CEO Brian Niccol said on the company’s earnings call that restaurant sales have improved after reaching a low point in the week ending March 29. He attributed the increase in sales to many factors, including tax refunds, consumer fatigue in cooking, and stimulus checks. “People said to me,” You know what, I have extra money. I’ve been working through my pantry load and I think it’s time to break my kitchen routine and be a little crazy and let’s go for restaurants to fix it, ”said Niccol .
  • Wendy’s CEO Todd Penegor told analysts during the company’s earnings call in early May that the stimulus checks had also lifted the business. In the second half of April, comparable store sales in the United States were still down – but declined less. “It’s hard to really quantify the magnitude of an impact, but every time personal disposable income improves a little, you see an impact in our business,” he said.

An employee prepares a burrito bowl at a Chipotle Mexican Grill Inc. restaurant in Louisville, Kentucky.

Luke Sharrett | Bloomberg | Getty Images

The bump was difficult to measure and may not last

But even if the companies described the increase in sales, they were hesitant to predict future sales and expenses.

First, it is difficult for companies to separate the impact of stimulus checks from other factors.

Shopping and spending habits changed dramatically and unpredictably during the pandemic, with consumers hoarding certain products and avoiding others. Many states began loosening or lifting locks in April, contributing to pedestrian traffic in stores. For home improvement retailers, spring is usually the busiest selling season.

For example, Lowe’s said it had strong sales even before the stimulus checks arrived. During long stays at home, said Ellison, more customers came to stores for new appliances or supplies for household projects. Her rival Home Depot said he was also feeling the effects of stimulus dollars, but spokeswoman Sara Gorman said it was difficult to quantify the impact.

Walmart was uncertain enough to withdraw its financial outlook for the year, despite soaring sales in the first quarter.

“We got off to a good start in May in the United States, but we think stimulus spending was a big driver, which we don’t plan to keep at these levels throughout the quarter,” said Brett Biggs, CFO of Walmart, about the earnings call business.

In addition, some of the stimulus spending may reflect urgent circumstances, which could indicate bad news on the horizon.

In the past nine weeks, 38.6 million people have filed for unemployment insurance in the United States, according to the Department of Labor. Others have had their wages or benefits reduced. For some of these people, the stimulus checks were a lifeline, and they rushed to the store to buy groceries, diapers or other necessities.

In addition to unemployment benefits, eligible people are claiming an additional $ 600 a week thanks to the stimulus bill. But this benefit should end after July. While the House Democrats passed another $ 3 trillion bailout bill that would extend payment until January 2021, Senate Majority Leader Mitch McConnell, R-Ky., Said that the next bill would not extend this benefit, CNBC reported on Thursday.

A customer leaves the Apple Store May 13, 2020 in Charleston, South Carolina. Customers had taken temperatures and had to wear masks at the store.

Sean Rayford | Getty Images

According to research by the private non-profit group, National Bureau of Economic Research, households spent about 25 to 35 cents more for every dollar raised in the first ten days after receiving payment. But after a week or two of higher spending, the researchers found that consumers had spent more than 40% of the check money.

Scott Baker, co-author of the report and assistant professor of finance at Northwestern University, said the impact of checks “goes out pretty quickly.”

“A few weeks after receiving the checks, most of the excess spending over people who did not receive the checks seemed to go away,” he said.

Some retailers did not mention any effect.

Macy’s, Kohl’s and L Brands, the parent company of Victoria’s Secret and Bath & Body Works, did not discuss stimulus spending when considering the first quarter results (or, in the case of Macy’s, of his preliminary results). These stores are just beginning to reopen. Most physical locations were completely closed when the Americans started receiving their stimulus checks.

Some saved rather than spent

While discretionary spending has increased after Americans received stimulus checks, much of the money has been thrown away, according to a study from Investvest Yodlee. The company found that in income ranges from less than $ 35,000 to more than $ 150,000, about two-thirds of the stimulus funds went to savings.

It is too early to say where and when these savings funds will be spent, according to Baker, the North West professor who is co-author of NBER’s research on stimulus spending.

A woman goes shopping in a Fairway supermarket amid the coronavirus pandemic in New York, New York, May 1, 2020.

Alexi Rosenfeld | Getty Images

“We will see how much the spending comes back. I think that’s the big question mark,” said Baker. “If there are still a lot of people out of work and the spending needs a little more help, then maybe it will require a little more stimulus spending.”

Congress is actually considering yet another round of stimulus payments to consumers as part of the $ 3 trillion proposal. But the NBER study suggests that a more targeted approach to low-income beneficiaries could have a greater effect on the economy: the consumers who lost the largest percentage of their income and who have the least savings tend to spend more on their checks, the NBER study found.

In other words, those who could afford to save did so.

“I think a lot of people, as much as possible, are trying to hoard money mainly because they are just a little bit unsure of what is going to happen in the near and far future,” said Baker.

-CNBC’s Amelia lucas and Lauren Thomas contributed to this report.

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