By Harriet Torry 

Many U.S. consumers are starting 2021 flush with savings likely to help fuel the economic recovery this year.

The latest federal Covid-19 aid package sent $600 checks to many households that also received relief money last year, while more affluent households have built up pools of cash by curbing their spending during the pandemic.

Americans saved $1.4 trillion in the first three quarters of 2020, or about twice as much as in the same period of the prior year, according to analysis by Berenberg Economics. That amount is equivalent to nearly 10% of 2019 household spending, estimates Berenberg's chief economist, Holger Schmieding.

"In this unusual recession, governments have been unusually generous, people have not been able to spend the money, and hence they have the money and will to spend," Mr. Schmieding said. Once business restrictions are lifted and people feel it is safe to go out again, "there will be a lot of spending -- my guess is the beaches will be crowded, the pubs will be crowded" and, "by May and June it will be in full swing," he said.

President Biden is calling for a new $1.9 trillion Covid-19 relief package to help Americans weather the economic shock of the pandemic. His plan includes $1,400-per-person direct payments to most households and a $400-a-week unemployment insurance supplement through September.

An analysis by the Federal Reserve Bank of New York found that consumers socked away more than a third of the first stimulus checks, which were sent to households as part of the $2 trillion Cares Act enacted last March. Just under a third of the stimulus payment, 29%, got spent, while 36% was saved and 35% used to pay down debt. The survey also found that consumers expected to spend an even smaller share of future stimulus payments, and use a higher share to pay down debts.

Marcus Prouty said he put his first $1,200 stimulus check into savings because he was "slightly terrified about what might happen" after he lost his job as a cook in March. Mr. Prouty, 25 years old, a student in Boise, Idaho, spent the aid over subsequent months. He has been receiving unemployment benefits and hopes to find a new job this spring when he expects businesses will start rehiring.

"I saved up enough money where I could buy needed stuff," like a new laptop, "but most of my money goes to food and rent," he said. He put his recent $600 stimulus check into savings and -- barring an unexpected emergency -- hopes to spend it on a vacation in California once he gets a Covid-19 vaccine.

The economic downturn caused by the Covid-19 pandemic is different from a typical recession that leaves consumers low on funds and businesses cautious to rehire as demand recovers slowly. Job losses have been severe in some sectors, particularly in services industries like bars and restaurants. But once vaccines are distributed more widely and demand for services picks up, economists expect employers in high-turnover sectors like bars and restaurants to rehire quickly.

Demand for services like haircuts, movie tickets, hotel stays and elective medical procedures was hammered by the pandemic, and spending on services remains below pre-pandemic levels. With nonessential businesses closed or operating at limited capacity in many regions, consumers haven't been able to spend their money as freely as before -- and many have been saving it instead.

The personal-saving rate, the portion of after-tax income that U.S. consumers sock away, was 12.9% in November, according to the Commerce Department. That compares with a saving rate of 7.5% in November 2019, before the pandemic hit.

James Sweeney, chief economist at Credit Suisse, says the 2021 economic outlook brightened considerably after Congress approved the second round of stimulus payments in late December. "The household sector of the U.S. looks to be in good financial shape," he said.

Economists expect a pickup in spending to push inflation somewhat higher this year, but said Federal Reserve officials wouldn't worry about that after years of weak price pressures.

Gregory Daco, Oxford Economics' chief U.S. economist, said the Fed "would welcome even more signs that increased activity is leading to moderate inflation pressures in line or above" its 2% inflation target.

Lower-income households are more likely to spend their checks straight away. Consumers with less than $100 in their bank accounts spent over 40% of their stimulus payments within the first month, while individuals with more than $4,000 in their accounts barely spent a dime, according to a recent study published by the National Bureau of Economic Research.

Saving hasn't been an option for Wendy Hartigan, 65, of Philadelphia, who describes the government aid as "the only thing keeping me from being on the street." She lost her job at a day care facility when it shut down in March. She started collecting unemployment benefits then and received her first $1,200 stimulus payment. Her $600 check came in early January.

"It's tough, it's not nearly enough, it comes into my account and goes out the next day, I haven't been able to save any of it," said Ms. Hartigan, who used the checks for bills, groceries and to pay for the room in the residential hotel where she now lives.

Ms. Hartigan has an event-planning business focused mostly on weddings, but the pandemic has shut down much of the industry. Two weddings she was set to plan last year have been postponed.

"This year's still up in the air, brides are still afraid," she said. "I'm really stuck, I'm stuck between a rock and a hard place."

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

January 26, 2021 05:44 ET (10:44 GMT)