Stimulus Checks: Where Do They Really Go?

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Stimulus Checks: Where Do They Really Go?

Three “Data” items today, all about US consumer/investor behavior and incremental household liquidity:

#1: The NY Fed was out today with their take on how Americans are spending/saving their stimulus checks. There’s a link below to the entire piece, but this chart from their analysis tells the story:

The “average percent spent” is the most interesting line for economists; it measures the American consumers’ marginal propensity to consume during periods of economic uncertainty. The numbers are fairly stable, running 25 to 29 percent. Also worth noting: households are saving marginally more of each round of stimulus. You’d expect to see that as the US economy begins to recover from the Pandemic Recession and, sure enough, the data supports that hypothesis.

From a market perspective, the headline takeaway is that Americans consistently saved or paid down debt with 71 – 75 percent of their stimulus checks. Here was the Fed’s take on what that means for the future:

“As the economy reopens and fear and uncertainty recede, the high levels of saving should facilitate more spending in the future. However, a great deal of uncertainty and discussion exists about the pace of this spending increase and the extent of pent-up demand.”

Takeaway: much of the last 12 months’ fiscal stimulus is sitting in bank accounts and unused credit lines, and markets believe this will soon – very soon – turn into spending. But the observation in the second sentence above is an important caveat: we simply do not know how quickly the American consumer’s marginal propensity to consume will increase or exactly where it will go.

#2: The latest Investment Company Institute mutual/exchange traded fund money flow data is just out; it includes all of March and has some truly eye-popping statistics:

  • March 2021 inflows for US equity funds totaled $60 bn, the largest single-month increase since the Pandemic Crisis began.
  • This comes on the heels of very strong inflows in February 2021, at $45 bn. This puts YTD US equity inflows at $68 bn, truly remarkable because US equity funds have not seen consistent inflows in well over a decade. There’s still 3 quarters to go, of course, but 2021 is starting off with a bang for US equity funds.
  • Bond fund inflows slowed materially last month, to just $39 bn from a trailing 6-month average of $69 bn.
  • Commodity fund (mostly physical gold) outflows accelerated in March, at $3.6 bn of redemptions versus $2.0 bn in February and $1.6 bn of inflows in January.
  • March’s aggregate fund inflows totaled $123 bn, a strong showing after January’s $121 bn. We haven’t seen back-to-back 9-figure monthly inflows into mutual funds and ETFs in many, many years.

Takeaway: it doesn’t take much imagination to connect these remarkable (3 standard deviations!) inflows into US equity funds to the Fed’s analysis of how Americans parceled out their latest stimulus check. A look at Google Trends (link below) shows that US searches for “ETF” peaked the first week of March and queries for “mutual fund” topped out in early February. But, as the prior section also noted, how much of this capital sticks around is an open question. One would think quite a while, but we’re really in charted waters here.

#3: We’re now at the halfway point of the 2020 tax season in terms of returns received by the IRS, and it’s now amply clear that millions of Americans who usually see a refund have not gotten one this year. The data:

  • 85.0 million returns submitted to the IRS as of March 26th, down 6 percent from last year likely due to the one month extended deadline for filing.
  • 56.5 million refund payments made, down 19 percent from last year (69.9 million). Average refund size is about the same as 2020: $2,902.

Takeaway (1): this is why the latest fiscal stimulus package (the American Rescue Plan) had a carve out for unemployment insurance payments up to $10,200 for households with less than $150,000 of income. These payments are usually taxable, hence this year’s shortfall as some recipients did not request withholding when payments are made. The IRS will be sending refunds to individuals who have already filed their 2020 taxes. We’ll keep looking at the data through May 2021 to see if refund levels improve with newly-filed returns.

Takeaway (2): this issue of unemployment insurance and tax refunds is a good example of how deep in the weeds policymakers are going to provide fiscal stimulus. The amounts here are not large in the scheme of the American economy; about $23 billion in reduced aggregate refund payments to date. But that’s also 13 million people, most of whom were unemployed for some part of last year, and the ARP fix certainly helps them.


Fed article on stimulus checks:

Google Trend chart for “ETF” and “mutual fund”:,mutual%20fund