WASHINGTON—Emergency pandemic relief doubled the savings of unemployed Americans over the spring and summer, but most of that cushion was depleted by the end of August, new research shows.
In a study released Friday, economists at the University of Chicago and JPMorgan Chase Institute looked at how economic-relief measures enacted this year, including an extra $600 a week in jobless benefits and one-time $1,200 payments to most households, affected the savings and spending of unemployed workers.
They found that workers who had received benefits pulled back spending moderately in August, after the extra $600 benefit payments expired July 31. In the first month without the extra payments, they also spent about two-thirds of the savings accumulated during the previous four months. The researchers didn’t know the identities of the account holders.
The study was based on data from roughly 80,000 families with Chase credit-card and bank accounts who received jobless benefits through August.
The findings may help explain why overall household spending in August was stronger than economists expected, despite a drop in incomes after unemployment checks shrank. They also point to a vulnerability for the U.S. economy in the months ahead: With savings dwindling and no further economic relief in sight, nearly 11 million jobless workers may curb spending even further or fall behind on debt or rent payments.
“It very much seems from the data that this is kind of a fall in progress,” Fiona Greig, director of consumer research at the JPMorgan Chase Institute, said of the spending decline.
Congressional Democrats and the White House continue to negotiate another economic-relief package, which could restore some of the jobless benefits that lapsed in August, though prospects have dimmed for a deal before the election. The two sides remain far apart on the size and scope of the measure, which appears to have little support among Senate Republicans despite calls from President Trump to “Go big or go home!”
The Trump administration’s outlook for a strong economic rebound through the end of the year conflicts with the forecasts of Federal Reserve officials and many economists. They predict that failure to provide more relief could slow the recovery and lead to long-term scarring for households and businesses.
The $2.2 trillion Cares Act Congress passed in March broadened jobless benefits to include freelancers and contract workers, extended their duration and boosted the amount by $600 a week.
Families of recipients increased their spending by 22% in April from a year earlier, to more than they were spending before the pandemic, according to the researchers, who attributed the increase largely to the $600 payments. That suggests the benefits weren’t only preventing hardship for millions of families but also providing a boost to the economy overall, Ms. Greig said.
When the $600 payments expired, those families cut spending by 14% in August, back to the average level in January and February.
At the same time, they began to draw down the money they had socked away earlier in the year.
From April through July, month-end checking account balances of jobless workers roughly doubled, from a median of $1,920 to $3,770. In August, the first month after the $600 payments expired, the median balance declined 33%, to $2,540, compared with a 16% decline for workers with jobs. Put another way, the families of jobless workers exhausted about two-thirds of the additional savings built up over the previous four months.
Wilmarie Gonzalez, 20 years old, of Reading, Pa., was among the millions thrown out of work as the spreading coronavirus pandemic closed businesses. Although she was eligible for just $150 a week in jobless benefits, the extra $600 payments allowed her to keep up with bills and set aside about $1,000, which she has already spent.
“I remember constantly putting money into my savings, every time I would get a check, just to make sure if and when it did run out I would have a little bit,” said Ms. Gonzalez, who wasn’t part of the study.
She was called back to her job at a hotel restaurant in July, but most weeks she was only offered part-time hours.
Ms. Gonzalez nevertheless made what felt like a drastic decision at the time and used all of her savings to pay two months rent in advance. She later found a job with full-time hours, at a Halloween store, but that will end in the middle of November.
“I told everyone they’re getting spooky gifts for Christmas, because I get 30% off,” she said. “I really have no contingency plan. I am fully winging it until this job is done.”
Ms. Greig said the decline in household spending continues, though researchers don’t yet have complete data for September.
“Eventually, if they continue even at the August level, they will continue to draw down that savings buffer,” Ms. Greig said.
As her co-author, University of Chicago economist Peter Ganong, put it, “The economy right now is essentially running—or not running—on the exhaust fumes of the CARES Act.”
Write to Kate Davidson at [email protected]
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