The third stimulus checks of $1,400 are on their way, and could prove to be a lifeline for millions of people affected by the coronavirus pandemic. In turn, coronavirus stimulus checks could also give a boost to GDP growth by as much as 10%, believe many Wall Street analysts.
Wall Street analysts are bullish on the U.S. economy following the $1.9 trillion stimulus package. Jefferies chief financial economist Aneta Markowska believes the economy is on track for “pretty strong growth” and is expecting GDP growth of 9.5% in the first quarter and about 7% this year.
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Speaking to Yahoo Finance Live, Markowska said the January retail sales proved the existence of the “tremendous propensity” to spend stimulus checks.
"I think the economy is in great shape. We are going to see the data continue to surprise on the upside probably for the next three or four months,” Markowska said.
Markowska uses several indicators to track economic activity, such as online shopping, restaurant bookings, employment gains/losses, and more. All these indicators have started to show encouraging signs in recent weeks.
Goldman Sachs' chief economist Jan Hatzius is also bullish on economic growth. The economist reiterated his forecast of 7.7% GDP growth this year. Hatzius estimates the first quarter growth to be 5.5%, and then accelerating 11% in the second quarter. The third and fourth quarter growth is expected to be 8.5% and 6%, respectively.
Consumer spending to boost economy
Economic data also supports the bullish view of analysts. In February, non-farm payrolls were up by 379,000, well above the 200,000 expected. Private payrolls were 456,000, against the estimates of 200,000. The unemployment rate also dropped from January's 6.3% to 6.2%. Hatzius expects the unemployment rate to hit 4.1% by year's end.
“The main reason that we expect a hiring boom this year is that reopening, fiscal stimulus, and pent-up savings should fuel very strong demand growth," Hatzius said in a new report titled The Coming Jobs Boom.
However, for the coronavirus stimulus checks to stimulate the economy, it is important that people spend them the right way, i.e. to buy goods and services. A national survey found that more than half of Americans will use their checks to pay for food, about 44% on utilities, and 35% on household supplies.
Such spending would have a direct impact on the economy. In case the stimulus money flows into the stock market, or is used to pay debt, then it may not directly benefit the economy.
A recent survey from Deutsche Bank found that young adults plan to spend about half of their stimulus checks on stocks. An online survey of 430 young adults using online broker platforms found that half of the respondents between 25 and 34 years of age plan to put half of their stimulus check payment into stocks.