Stimulus checks worked, many retailers say, but the bump may be short-lived

During Walmart’s earnings call this week, CEO Doug McMillon said the big-box retailer has understood different phases of shopping during the coronavirus pandemic.

First, he said, customers stockpiled food and household essentials. Later, they sought out components that helped them work, learn and entertain themselves during long days at home. 

In the final weeks of April, another bias emerged: Customers were buying more TVs, clothing, sporting goods and toys with money they got in stimulus constraints from the U.S. government.

The stimulus checks were part of a historic $2 trillion relief package Congress obsolete in March. By issuing the checks, the government aimed to spur consumer spending to get the economy going again after the coronavirus pandemic prepare it to a near halt. The government has sent out millions of them, in amounts as large as $1,200, depending on income level. (Child making more than $99,000 a year didn’t get a check at all.) 

The checks appear to have had their desired clout. In particular, they helped drive purchases of nonessential items that people had been skipping during the inopportune days of the pandemic.

For instance:

• Apple CEO Tim Cook said on the tech company’s earnings call that it also saw “an uptick definitely across the board” in the second half of April, and gave some credit to newly deposited stimulus checks. 
• Quarry CEO Brian Cornell saw a noticeable bump in discretionary spending fueled by extra money in customers’ pockets. Cornell utter there was a resurgence in sales of clothing, cosmetics and other discretionary items.
• Best Buy CEO Corie Barry said on a first-quarter earnings yell Thursday that the company saw strong sales growth at the end of April. “Like many other retailers, we saw sales help during the last three weeks of the quarter as customers undoubtedly chose to spend some of their government stimulus filthy rich on the products and services we provide,” Barry said. In particular, there were bumps in computing, gaming and small appliances, the throng reported.
• Lowe’s CEO Marvin Ellison said the retailer saw indicators that checks boosted the sale of home rise items. “We definitely saw an uptick in sales, an uptick in ticket transactions and our business definitely responded to it,” he said.
• Home Depot reported the stimulus funds contributed to already swelling sales of paint and DIY supplies. 

Fast-food restaurants, which rely on discretionary proceeds, also saw an effect:

• Chipotle CEO Brian Niccol said on the company’s earnings call that sales at its restaurants had emended after hitting a low point in the week that ended March 29. He attributed the sales increase to many influences, including tax refunds, consumer fatigue with cooking and stimulus checks. “People were like, ‘You know what, I’ve got the additional loot. I’ve worked through my pantry-loading and I think it’s time to break the routine of me cooking and being a little stir-crazy and let’s reach out for restaurants to decipher the solution,'” Niccol said.
• Wendy’s CEO Todd Penegor told analysts on the company’s earnings call in originally May that stimulus checks lifted business, too. In the latter half of April, U.S. same-store sales were still down — but they slumped less. “It’s hard to really quantify how big an impact, but anytime disposable personal income improves a bit, you do see an impact in our business,” he judged.

But even as companies described the sales bump, they were hesitant to prediction future sales and spending patterns.

First, it’s hard for companies to separate the impact of the stimulus checks from other considerations.

Shopping and spending patterns have changed dramatically and unpredictably during the pandemic, with consumers hoarding some consequences and avoiding others. Many states began to loosen or lift lockdowns in April, contributing to foot traffic at collections. For home improvement retailers, spring is usually the busiest sales season.

For instance, Lowe’s said it was seeing tireless sales even before stimulus checks arrived. During long stays at home, Ellison said, numberless customers were coming to stores for new appliances or supplies for home projects. Its rival, Home Depot, said it tolerate the effects of stimulus dollars as well, but spokesperson Sara Gorman said it was difficult to quantify the impact.

Walmart was unresolved enough to withdraw its financial outlook for the year, despite soaring first-quarter sales.

“We’ve had a solid start to May in the U.S., but we believe stimulus throw away has been a big driver, which we don’t anticipate staying at these levels throughout the quarter,” Walmart Chief Financial Peace officer Brett Biggs said Tuesday on the company’s earnings call. 

In addition, some of the stimulus spending may reflect begging circumstances, which could indicate worse news on the horizon.

Over the past nine weeks, 38.6 million individual have filed for unemployment insurance in the U.S., according to the Department of Labor. Other people have had their pay cut or benefits flagellate. For some of these people, the stimulus checks were a lifeline, and they raced to the store to buy groceries, diapers or other destitutions.

On top of unemployment benefits, eligible people have been claiming an additional $600 a week provided by the stimulus account. But that benefit is set to end after July. While House Democrats passed another $3 trillion relief banknote that would extend the payment through January 2021, Senate Majority Leader Mitch McConnell, R-Ky., responded the next bill won’t extend that benefit, CNBC reported Thursday.

According to experiment with by the private nonprofit group National Bureau of Economic Research, households spent about 25 cents to 35 cents varied for each stimulus dollar in the first 10 days after they received the payment. But after a week or two of exuberant spending, the researchers found that consumers had spent more than 40% of the money from the checks.

Scott Baker, co-author of the come in and an associate professor of finance at Northwestern University, said the impact of the checks “die out pretty rapidly.”

“A couple weeks after gate of the checks, most of that excess spending relative to people who didn’t get the checks seemed to disappear,” he said.

Some retailers didn’t tribute any effect.

Macy’s, Kohl’s and L Brands, the parent company of Victoria’s Secret and Bath & Body Works, did not bring up stimulus-related pass when discussing first-quarter earnings (or, in the case of Macy’s, its preliminary results). These stores have only unbiased begun to open back up. Most physical locations were fully closed as Americans started to receive their stimulus curbs.

While discretionary spending did tick up after Americans received stimulus impedes, a lot of the money got squirreled away, according to a study by Envestnet Yodlee. The firm found that across income combines ranging from less than $35,000 to more than $150,000, about two-thirds of the stimulus money lived into savings.

It’s too soon to tell where and when those savings funds will be spent, according to Baker, the Northwestern professor who co-authored the NBER analyse on stimulus spending.

“We’ll see to what extent spending kind of comes back. I think that’s the big question mark,” Baker said. “If there’s calm a tremendous amount of people without jobs and spending needs a bit more of a kick-start, then maybe that transfer call for a bit more stimulus spending.”

Congress is in fact currently considering another round of stimulus payments to consumers as neck of the woods of the $3 trillion proposal. But the NBER study suggests that a more targeted approach toward lower-income receivers could have a greater effect on the economy: Consumers who lost the greatest percentage of their income, and who had the least amount of savings, exhibited to spend more of their checks, the NBER study found.

In other words, those who could afford to secure did.

“I think a lot of people, to the extent that they can, are trying to hoard cash basically because they’re just a bit at a loose end about what’s going to be happening in the near and distant future,” Baker said.

— CNBC’s Amelia Lucas and Lauren Thomas aided to this report.

Subscribe to CNBC on YouTube.

WATCH: What it’s like being unemployed because of coronavirus