Is Stimulus Surplus Money Helping to Avoid a Recession?

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There is a reason why consumer spending remains strong despite inflation.

For most of 2022, economists have insisted on warning consumers about a possible recession in 2023. Last year, consumers were repeatedly told to save more and pay off debt before a potential recession.

But so far, it doesn’t look like we’re getting any closer to an overall economic decline. Consumer spending has fallen in recent months, but to a modest extent despite inflation.

Consumers may still have money in the bank

Private consumption fell for the second month in a row in December. It fell 0.2% compared to November, according to Commerce Department data reported by Reuters. Also, personal consumption in November he decreased by 0.1% compared to October.

These dips are fairly modest given last year’s spike in inflation. Even if this trend continues, it will not be enough to trigger a major recession in 2023.

But consumer spending this year could start to fall sharply for one very big reason. This is not inflation. Rather, consumer spending could decline once the surplus funds from the stimulus package from 2021 run out.

In 2021, lawmakers have been very generous with their stimulus packages. They approved his $1,400 check, which began arriving in the payee’s bank account in March of that year. They also significantly boosted the child tax credit, increasing its maximum from $2,000 per child to $3,000 per child ages 6 to 17 and $3,600 per child under 6. I pulled it up. Tax liability can be fully claimed for its value.

Some people had to use the stimulus package they received in 2021 to cover short-term spending as inflation began to rise. But many people who received paydays from the government that year didn’t need the money right away. And in 2022, we had the option to continue spending even as the cost of living skyrocketed.

At this point, however, much of that stimulus funding is likely to run short. The rest of the stimulus may have helped stave off a recession so far, but conduct When that lifeline is depleted, it can get worse.

Preparing for a recession pays off

A recession in 2023 is not a certainty. However, it is advisable to increase your savings as much as possible to be prepared. A recession can lead to widespread layoffs, and one of the best ways to deal with unemployment is to have some cash to rely on.

Indeed, if a recession hits and the larger economic situation deteriorates enough, lawmakers may be spurred to issue new rounds of stimulating funding. In setbacks it is less likely to happen. Consumers should therefore prepare for recessions by increasing their savings rather than relying on stimulus packages.