Uncategorized
A fiscal bridge for consumer demand
admin | August 14, 2020
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
In the early days of the pandemic, the CARES Act supported household incomes through tax rebate checks, an unprecedentedly generous $600 weekly addition to unemployment benefits and expanded unemployment eligibility. The idea was to bridge the interruption in income from government-imposed lockdowns. At that time, the economic impact of the virus looked like it would be brief, with the extra benefits set to expire on July 31. Personal income data through June show federal transfer more than replaced lost wages from April through June. What remains of that support after President Trump’s executive orders appears to be enough to cover pandemic-related losses in wage and salary income for now, and another fiscal package, which still seems likely at some point soon, would offer a massive boost to consumer demand late this year.
Mind the gap
When Congress negotiated the CARES Act in late March, the hope was that lockdowns would last for a matter of weeks, and that the economy might get back to a semblance of normal within a handful of months. The relief offered to consumers came as a one-time round of rebate checks to households and bonus unemployment benefits that extended to July 31.
Personal income data through June show the federal largesse more than made up for the loss in income caused by the lockdowns. Exhibit 1 tallies up the losses in private income. These include both wage and salary declines, as well as falls in the income of nonincorporated businesses and financial income. All of the monthly figures are annualized, so the raw changes are roughly one twelfth of the magnitudes reported in the tables.
Exhibit 1: Personal income – private losses
Source: BEA.
Wage and salary income dropped by roughly $1 trillion annualized, or about $80 billion a month, in April and began to gradually recover in May and June, while other private income losses amounted to around $40 billion a month in April, May, and June. In all, the cumulative change through June relative to a February baseline was $4.4 trillion annualized, or about $367 billion on a not annualized basis.
Government largesse more than filled that gap. Exhibit 2 shows the impact of household rebate checks and unemployment benefits on income. Unemployment benefits built gradually in March and April but added more than $100 billion to income in May and in June (the July figure was broadly similar). Meanwhile, household rebate checks went out mainly in April and May. Overall, Treasury dispersed about $280 billion, not annualized, through June and another $5 billion in July. The combination of the two added cumulatively over $7 trillion annualized, or about $594 billion not annualized, from March through June.
Exhibit 2: Personal Income – Federal Government Boost
Source: BEA.
The two programs amounted to payments that were more than $200 billion larger—about $2.5 trillion in annualized terms—than the cumulative loss of private income, leaving households in the aggregate far better off than they would have been in the absence of the pandemic, at least through June. This helps to explain both the rapid bounceback in consumer spending, especially for goods, where social distancing constraints are not as difficult of a problem.
July update
Last month, the rebate checks slowed to a trickle—roughly $5 billion—but unemployment benefits remained just over $100 billion larger than the pre-pandemic baseline. Meanwhile, the July payroll data suggest that wage and salary income continued to gradually claw higher, leaving the July level perhaps almost $40 billion not annualized below the February pace. Even in the absence of another round of stimulus checks, the unemployment benefits alone were more than enough to cover the lost wage and salary income due to lingering lockdowns and persistent dislocations caused by the virus.
Looking ahead
Of course, the game changed on August 1, as the bonus unemployment benefits in the CARES Act expired at the end of July. Without an extension, the calculus would undoubtedly have changed in an adverse way for household income. For now, President Trump stepped in by issuing an executive order that authorizes $300 a week in bonus payments and another $100 a week from state governments that can pay them.
The average level of regular state unemployment benefits amount to between $300 and $350 a week, so the payouts through July worked out to roughly triple the norm, and a cut to $300 per week would work out to a pullback of roughly one-third. Doing the math, unemployment benefits in August would presumably fall to around $70 billion for the month, less the decline that would result from a decrease in the number of people collecting benefits as employment continued to rise. For the sake of argument, assume that unemployment benefits total around $50 billion to $60 billion in August. Meanwhile, private wage and salary income was down by less than $40 billion in not annualized terms from February as of July, and the gap presumably narrowed further in August.
The cutback in the level of benefits pursuant to President Trump’s executive order will narrow the positive spread at the margin, but households are still likely to be at least on par if not better off in the aggregate than they would have been in a pre-pandemic world.
If a second CARES Act is eventually passed and it includes more generous unemployment benefits as well as a second round of rebate checks, which both parties reportedly support, then households would receive another massive rocket boost to their incomes again, even as the employment losses caused by the pandemic continue to narrow.
Conclusion
The personal income data through June allow for a rigorous accounting of household finances. The details show that households ended up better off through extremely generous federal government payments than they would have been in the absence of a pandemic, and that imbalance appears to have continued in July. Households are likely to be no worse than made whole in August, even without a second round of rebate checks and a cut in the level of bonus unemployment benefits. While an abrupt end to unemployment benefits on August 1 would have been problematic, the current situation should be sufficient to support ongoing recovery in consumer spending, and, if Congress eventually passes another fiscal package that offers rebate checks and prolongs the current unemployment benefit formula or better, as I expect, then households will be in a position to spend heartily later this year.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
