Editor’s Note: This piece is adapted from a summary originally posted by the Becker Friedman Institute for Economics at the University of Chicago. The research was also presented at a June 2020 conference for the Brookings Papers on Economic Activity (BPEA). The paper was co-authored by researchers from the JPMorgan Chase Institute as part of their COVID-19 research series.

A key question since the beginning of the COVID-19 pandemic is how shutdowns affected consumer spending across the income distribution and whether U.S. stimulus packages were effective in stabilizing income and spending.

According to new research from Princeton’s Natalie Cox and Arlene Wong and the University of Chicago’s Peter Ganong, Pascal Noel, and Joseph S. Vavra, spending plunged for all households at the onset of the pandemic. After government stimulus, poorer households had more rapid spending and savings growth than richer households.

The authors use anonymized bank account information on millions of JPMorgan Chase customers to measure how spending and savings over the initial months of the pandemic vary with household-specific demographic characteristics, like pre-pandemic income and industry of employment. The authors find that most households cut spending dramatically in early March, with declines particularly concentrated in sectors sensitive to government shutdowns and increased health risk, like travel, restaurants, and entertainment. Richer households, who typically spend more in these categories, cut their spending slightly more than poorer households.

Year over year growth in debit card spending by income quartile

Starting in mid-April, after government stimulus checks and expanded unemployment benefits are put in place, spending by poor households recovers more rapidly than spending by rich households. At the same time, poor households also have the largest growth in liquid checking account balances. Thus, poorer households simultaneously have faster growth of spending and savings starting in mid-April, even though they face greater exposure to labor market disruptions and unemployment.

Year over year growth in checking account balances by income quartile

The research suggests an important role for government transfers in stabilizing income and spending during the initial stages of the pandemic, especially for low-income households. This in turn suggests that phasing out broad stimulus too quickly could potentially transform a supply-side recession driven by direct effects of the pandemic into a broader and more persistent recession caused by declines in income and aggregate demand.

To learn more, read the full paper.