Stimulus Checks Sure Are Stimulating, BofA Says

Recent Surge in Credit Card Data Prompts Higher GDP Forecast

A woman observing prices for a television in a store.
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A recent surge in credit and debit card spending shows the latest round of stimulus checks are doing their job, Bank of America said Thursday—so much so that the U.S. economy is likely to soar even higher than presumed.

March data from the bank’s own cardholders showed “exceptional consumer spending,” particularly in the latest week tracked, the bank said, raising its forecast for both 2021 and 2022 economic growth yet again.

Key Takeaways

  • A recent surge in spending on Bank of America credit and debit cards shows the latest round of stimulus checks are in fact stimulating the economy, Bank of America said in a report Thursday. 
  • The surge is giving economists even more cause to be optimistic about future economic growth and the country’s ability to recover lost jobs.
  • Spending among lower-income stimulus check recipients was particularly high.

For the seven days through March 20, total card spending was 23% higher than two years ago (a better comparison than last year, the bank said), while spending among stimulus check recipients was 49% higher. Notably, stimulus check recipients in the lowest income group—those earning less than $50,000—spent a “staggering” 69% more than two years ago, the bank's BofA Securities arm said in a global research report.

“It is hard to keep up with this economy,” wrote Michelle Meyer, an economist at BofA Securities.

Economists have been predicting the combination of an increasingly normal everyday life and cash from the federal government’s latest pandemic relief package would jumpstart consumer spending, and in turn, fuel economic growth this year of two to three times pre-pandemic levels.

But the proof is in the pudding. Bank of America’s credit card data, described by the bank with words like “whopping,” reflects the first week of spending since the latest round of stimulus checks—up to $1,400 per person—started arriving in bank accounts across the country. The first 90 million checks were out by March 17, according to the IRS.

Brighter Forecasts for GDP and Unemployment

BofA said its economic outlook, already optimistic, is even rosier now. For 2021, the bank boosted its growth forecast for real gross domestic product (GDP) to 7% from 6.5%, and for 2022, to 5.5% from 5%. That’s even higher than the Federal Reserve’s recently raised forecast of 6.5% for 2021 and 3.3% for 2022. 

On the unemployment front, the bank is predicting the economy will add an average of 950,000 jobs per month during the second quarter—two and a half times February’s growth—bringing the unemployment rate down from 6.2% in February to 4.7% by summer and 4.5% by year end. And by next year, the bank predicts, several measures of the job market will have fully healed from the pandemic.

“We think consumer spending is about to take-off given the one-two punch of stimulus and reopening,” Meyer wrote, citing the widespread expectation that COVID-19 vaccines and lower infection levels will reduce the risks of contraction and in turn the limitations on activities. 

GDP growth for next year, she wrote, reflects “penciling in a ‘placeholder’ for another round of stimulus,” perhaps passed by the end of this year. 

In order to assess their impact, Bank of America filtered the spending data by those who had received stimulus checks and those who hadn’t. For the week through March 20, spending by lower-income consumers who hadn’t received stimulus checks (presumably because they’re still being distributed) was up only 16% from two years earlier, compared to the 69% for those who had. In the highest-income group, card spending rose 7% for those who hadn’t received checks and 29% for those who had.

This shows the lower-income consumer, who tends to spend more on goods than services, is leading this early stage of the spending boom, BofA said, but that’s likely to shift. Higher-income consumers who are sitting on unintentional excess savings will likely take over once people “have a green light” to re-engage in the service economy—industries like travel and entertainment, the bank said.