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Costco Racks Up Stimulus Spend; Research Shows High-Income Consumers Will Save

There were all kinds of questions in the public sphere as the second round of stimulus checks went out in early 2021. Would consumers actually spend them as intended, or would those stimulus dollars flow into savings accounts and toward paying off debt as so much of the first $1,200 round had? Was it not enough money? Was it too much money?  Did the right people get it?  Would the payout be smoother the second time through?

What no one thought to ask ahead of time was whether the stimulus payments would end-up funding the first crowd-funded short-squeeze in the history of the stock exchange, wherein a bunch of Redditors managed to cause some moderate market chaos in the ending day of January. Such are unintended consequences — because as it turns out that’s exactly what did happen, according to TheStreet reports. It said stimulus payments (or stimmies as they are colloquially called) provided the key cash in hand for many of the participants in the run on GameStop’s stock price the dominated the news last week.

Of course, comparably few consumers invested their stimulus payments in GameStop stock/a personal war with institutional short sellers, which begs the question — where will those stimulus dollars actually end up?

The simple answer to that question might be Costco. The warehouse club retailer reported its January sales data on Wednesday and stimulus checks have boosted its January same-store sales. Worldwide, comparable sales were up 15.9 percent year-on-year last month and led by U.S. comparable stores growth of 16.4 percent and an eCommerce explosion of 105.4 percent. And though Costco noted that spend was largely in necessary goods — like household cleaners — it did start to see some recovery in discretionary spending, which also enjoyed double-digit growth, as consumers started spending stimulus dollars.

There is, however, a more complicated answer to “how will consumers spend their stimulus?” Because it seems to be a function of who that person specifically is.

Some consumers like Albert Lewis are increasingly looking into investment as an option for the $600 payment that has hit their accounts as a sudden windfall. Lewis is a college student on scholarship currently living at home with his parents. He told Bloomberg he’s hoping to park his money with a firm like Apple or Facebook or “some company that’s not going anywhere.”

Lewis represents the share of the economy who will receive a payment even if they don’t “need” it, strictly speaking, said R.A. Farrokhnia, Columbia Business School professor and executive director of the Fintech Initiative. And those consumers are the least likely to spend it and who are far more likely to save or invest.

“There are going to be a number of people who won’t need it and are still going to get the checks because the issuing of the check is purely based on income, not employment,” Farrokhnia said. “Those who actually have been lucky to still have jobs end up saving more, because they are not putting money into the economy, they’re not going out to restaurants, and are on Zoom so they won’t be needing a whole lot of new clothes or shoes.”

And the early second round of stimulus data from a variety of sources aligns broadly with that take. According to Financial Times data, 60 percent of consumers making less than $50,000 a year will spend their stimulus dollars on living expenses and essential expenditures, while only 41 percent of those making over $100,000 annually will do the same. That picture reverses, according to the FT data, when one looks at the intention to save, which 43 percent of those earning $100,000 plan to do, as opposed to 36 percent of those bringing in less than $50,000.

The Center for the New Middle Class, according to FastCompany reports — broke consumers up by credit score as opposed to income. It found a similar difference between the prime (high credit score) and non-prime groups. Only 25 percent of non-prime consumers said they planned to save the money, versus 46 percent of prime consumers.  Still, despite the relatively sluggish intention to spend forecast for more financially stable consumers, the evidence that the funds are being spent by consumers is also becoming apparent.

The Center for the New Middle Class study aligns with survey data from Morning Consult in December, before checks were sent out. It found across the income spectrum — from high to low — that there was a strong intention to save that money, though, as other data sources demonstrated, high-income consumers were the most likely class of savers.

Losing out among all shares of consumers, on the other hand, discretionary spending and consumer durable goods purchases were ruled unlikely to see a dramatic increase as a result of the spending bill. That does not, according to the survey authors, mean a decrease, but that there won’t be much of a change in trend one way or the other.

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