Consumer spending numbers are out, and they show that the Coronavirus stimulus checks sent by the IRS was largely spent in May. That’s good news for lawmakers who want to see proof that the stimulus they are pouring into the economy is actually doing what it was meant to do. However, it remains to be seen whether there will be a second round of IRS stimulus money.
IRS stimulus money spent
The Commerce Department reported today that consumer spending increased 8.2% month over month in May, which is a new record. May's increase followed the record 12.6% decline in April. Despite the increase in May, second-quarter spending remains far below first-quarter spending, but it does demonstrate that the economy is starting to grow again.
The first round of IRS stimulus money included not only the checks but also the extra $600 in weekly unemployment benefits. The increase in consumer spending in May demonstrates that people were spending all that extra money.
Some lawmakers were concerned that the stimulus money sent by the IRS was ending up in bank accounts instead of being spent in the economy. The Wall Street Journal noted that even though income dropped sharply, unemployment and stimulus checks have more than made up for the decline. In fact, the average personal income level in April and May was 7% higher than the average monthly amount in the first quarter.
What happens when it runs out?
Today's report also shows that the government benefit category, which includes IRS stimulus money, amounted to $98.3 billion in May. The month before, this category amounted to $262.1 billion, while in March, it was only $44.6 billion. Unemployment benefits rose to $106.5 billion in May from $37.7 billion in April and $5.8 billion in March.
The IRS had already sent most of the stimulus money in the form of checks, direct deposits and prepaid debit cards out in April and May, so personal income will drop from where it was in May. The extra $600 in weekly unemployment benefits ends at the end of July unless Congress extends it, so that money will be going away in a little over a month.
Although much of the IRS stimulus money has been spent, it hasn't all been spent. Personal savings as a share of disposable income fell to 23.2% in May, a significant decline from the record high saving rate of 32.2% in April. However, it was still quite high. Some Americans are still sitting on the stimulus money they received from the IRS.
The big question now is whether the IRS will send more stimulus checks. Lawmakers and White House officials seem to agree that a phase four package is needed. The commentary seems more and more focused on targeting the next package more carefully toward the people who need it most instead of sending stimulus checks to anyone who earned up to $99,000 last year.
The Senate won't take up the issue until at least July 20, so in the meantime, we just have to watch and listen to what officials are saying for clues about what will be in the next package.