The Last Stimulus Check Had a Major Economic Impact

by Christy Bieber | Updated July 25, 2021 - First published on March 1, 2021

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Two women walking down a street arm in arm carrying shopping bags.

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That's good news for everyone in America.

In response to the COVID-19 pandemic, lawmakers previously authorized the payment of two coronavirus stimulus checks.

One of these direct payments was delivered into Americans' bank accounts by the CARES Act, which passed in late March of 2020. The most recent was distributed in late December and early January. Now, the Biden administration is working with Democrats to pass another coronavirus relief bill that would provide the largest check yet -- $1,400 per adult and eligible dependent.

As lawmakers consider approving a third direct payment, it's worth looking at the impact of the most recent one -- especially since it had a profound positive effect on the economy.

Here's how the $600 coronavirus stimulus checks impacted consumer spending

According to data from the U.S. Census Bureau, there was a surge in retail shopping in January. This is a marked change from months of declining sales. Economists had predicted that sales would go up slightly, estimating about a 1.2% increase. But consumers actually spent far more than predicted. In fact, retail sales increased by 5.3% in January, jumping up to $568.2 billion.

The increase in consumer demand that drove up retail sales was likely caused by two major factors. The first was optimism about the future as news of a vaccine broke and people began to envision a return to normality.

The second and most likely reason for the surge, though, was the arrival of the $600 stimulus payments. They put more money into people's pocketbooks, which they in turn were able to spend.

The rise in retail sales wasn't isolated to specific industries, although some sectors did better than others -- namely because people are still staying home more and are taking steps to improve their living conditions. There was a 14.7% rise in electronics sales in January and a 12% bump in sales at furniture retailers, for example. But people did start going out more and spending money at some businesses that had been hit especially hard by the pandemic. Restaurants and bars even saw a 6.9% monthly increase in sales.

The data still shows, however, that many consumers continue to turn to online shopping with increasing frequency, especially as they boost their spending due to stimulus funds. In January, there was an 11% monthly increase in ecommerce sales. And online retailers saw the biggest year-over-year increase in spending of any sector, with sales up 28.7% since January of 2020.

The increased consumer spending in the retail sector is mostly all good news, but retail sales are still down 3% compared with January of 2020. Plus, sales at bars and restaurants as well as on clothing and accessories, are still down dramatically year over year. So there's definitely room for economic improvement. Since the next stimulus check is likely to be even bigger than previous ones, it's possible that the third COVID-19 direct payment will have an even more profound impact in driving up retail sales and improving economic conditions.

A large stimulus payment combined with a growing number of Americans getting vaccinated could be very good news -- especially for businesses that have been coping with the economic fallout of coronavirus as everyone waits for life to return to something resembling normal.

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