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Stimulus Checks Will Pay Bills Instead of Boosting Economy

While the first round of stimulus checks encouraged spending as workers were adjusting to life at home, many expect the second round of payments will mostly go towards bill payments and savings.

(TNS) — Consumers in Maine and across the country are more likely to use their latest federal stimulus check for bills, repairs or savings than to go on shopping sprees.

The federal stimulus checks aim to boost the economy through consumer spending, along with helping consumers pay bills. While the first round of checks last April did spur pent-up demand for new sofas or appliances from consumers under stay-at-home orders, the second round comes as people endure the financial and health effects of the 11th month of the coronavirus pandemic. The checks, which were rolled out to qualifying households starting on Jan. 1, are half the amount of the first checks.

"With the first round of checks, it was crazy," Dave Sheperd, owner of The Major's Furniture & Appliance in Farmingdale, said. "Everyone was coming in because they were stuck at home and wanted to renovate. We're not seeing that as much with the second round."

One factor is the lower check amount. A couple could qualify for $2,400 the last time, but only $1,200 this time, barely enough to buy the furniture or appliances they really want. That puts potential customers in the position of deciding whether to pay existing bills like electricity or splurge on something that perhaps can wait, Sheperd said.

Spending or saving habits for the second round of checks appear to be along the same lines as the first checks. Nationally, households making $75,000 to just under $100,000 used the first round of checks to pay debt or add to savings, according to a U.S. Census Bureau survey. Those making $25,000 or less used most of the money on food, rent, utilities and other household expenses. Only 8 percent bought electronics, appliances or furniture.

Consumer spending in Maine, which had risen by 2.1 percent in mid-September, declined through the last three months of 2020 to reach a negative 0.7 percent on Dec. 6, according to Opportunity Insights, an economy tracking company. Figures for the holiday season were not yet available. However, the delay in President Donald Trump's approval of the second federal stimulus on Dec. 27 caused consumers and small businesses to cut expenses and make other adjustments to stay afloat.

New state unemployment claims ticked up for the week that ended Jan. 2, with the coronavirus pandemic continuing to have an impact on the job market. The Maine Department of Labor said there were about 3,900 initial claims for state unemployment insurance, up from 2,700 new claims the previous week. A total of 4,300 people filed a new claim or reopened an unemployment claim, up 1,000 from the previous week.

Those on fixed incomes also are stretching to make ends meet.

"I almost live on my credit card," said Ed Barrood, an Orrington retiree who is otherwise living on Social Security and used both stimulus checks to pay down a credit card he still owes several thousand dollars on.

Others who answered a Bangor Daily News reader inquiry, including Frank and Lynda Cassidy of Union, are in a position to donate their $1,200 check to a food bank, something they did with the first check. Frank, a retired electronics engineer, said the couple hasn't been affected financially by the coronavirus and wants to help others. He wishes the checks could have been targeted more to people who really need them.

"We probably should not have gotten it," he said.

Jennifer Fisk, who owns the Acadia Woods Kennel in Bar Harbor, said she is saving the money, as she did with the first stimulus check. Business dropped off when the pandemic hit Maine in March and she had to lay off her one employee. Kennel stays rose during the summer tourism season, but few animals are being boarded now, even for holidays.

She said the $600 amount that Congress and the president argued over was "way too little, way too late."

"I'm hanging onto the cash as a cushion and I've curtailed my spending," she said. "I have a big property tax bill coming in August."

The bigger payout looks like more of a possibility with President-elect Joe Biden entering office on Jan. 20 with a Democratic-controlled Senate. The Senate had refused to support a House measure to increase the most recent round of stimulus checks to $2,000, but that's likely to move ahead now, according to Bloomberg News. Last week, Senate Minority Leader Chuck Schumer, D-New York, said at a press briefing that the $2,000 checks will be "one of the first things" the Senate does under his control.

Had the checks been $2,000 compared to the $600, people making less than $65,000 in 2020 would have seen an average income increase of 11 percent compared to 3 percent for a $600 payment, according to the liberal Institute on Taxation and Economic Policy. Those making less than $21,300 in 2020 would have seen income increase by about 29 percent by the $2,000 payment compared to 8 percent by the $600 payment.

"People are hurting out there," Fisk said.

(c)2021 the Bangor Daily News (Bangor, Maine) Distributed by Tribune Content Agency, LLC.

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