Millions of Americans across the country began to receive $1,400 stimulus payments included in the American Rescue Plan as early as March 17th. An estimated 1.1 million Philadelphians are expected to receive these payments.
While not replacing lost earned income—the purpose of expanded unemployment and business safety-net programs like PPP—this payment program represents a very important one-time financial boost for a large number of Philadelphians. Much of the spending of these payments will see its way into Philadelphia businesses, and thereby support additional employment and earnings which then recycles virtuously throughout the economy as production and services increase. We have estimated the size of these potential impacts and share them here.
The American Rescue Plan was signed into law with stricter income restrictions for stimulus payments than the previous two rounds. New to this round of stimulus, filers can receive up to $1,400 for dependents over 16 years old. Using IRS data on individual income tax returns in Philadelphia, we estimate that over 700,000 filers and almost 375,000 dependents are eligible for third-round stimulus payments, totaling nearly 1.1 million Philadelphia residents (see Figure 1).
Adjusting for phased-out payments, these 1.1 million stimulus payment receivers gain an aggregate of nearly $1.5 billion in new household income. But, not all of this will circulate in the Philadelphia economy. First, households aren’t required to spend 100 percent of their income increase, and many may choose to save some a portion of the payment. On top of that, household savings rates have increased since the initial COVID-19 shutdowns as business and restaurant closures removed typical spending outlets for consumers. This sudden drop in consumption resulted in the total Philadelphia household savings rate increasing 120 percent from 2019 to Q3 2020 (see Figure 2).
Second, Philadelphia household spending leaks out of the region when residents shop online, an increasing trend since the start of the pandemic. Stay-at-home ordinances and non-essential business closures made it difficult to shop at brick-and-mortar stores, so consumers turned to Amazon and other online retailers for everything from grocery orders to self-care essentials. The more that consumers use non-local businesses, the more potential spending leaks out of the city economy.
Economic Impact from Third-Round Stimulus Payments
The third batch of stimulus payments will create a one-time, $1.5 billion increase in household income for Philadelphia residents. This new income creates a multiplier effect as households re-spend this income, causing money to recirculate through household spending patterns supporting local businesses in neighborhoods throughout the city. The onset of the pandemic drastically shifted typical household spending towards saving and ecommerce, creating differing multiplier effects and impacts from household spending between the pre-COVID state (2019) and during the economic contraction (2020 Q3). Presumably, the state of Philadelphia’s economy is somewhere between those two timeframes as the City continues to ease restrictions and accelerate its vaccination program.
- 2019 Impact: $1.5 billion in induced impact, supporting 7,900 FTE jobs and $494 million in employee compensation
- 2020 Q3 Impact: $1.2 billion in induced impact, supporting 5,600 FTE jobs and $392 million in employee compensation
The $300 million differential in the impact of this infusion of household spending between Philadelphia’s pre-pandemic baseline economy the COVID-impacted economy is significant and speaks to the economic importance of restoring activity in the city. The more the economy approaches its prior state in the coming months, the greater the local capture of stimulus payments will be, as opposed to leaking out of the city.
To put the FTE employment supported into context, we benchmarked this estimated growth against the post-pandemic job loss. Philadelphia suffered a significant drop in employment in the months following the initial shutdown. Although the job market is recovering, the city is still down approximately 91,500 jobs relative to February 2020. The economic impact of the 2021 stimulus payments is anticipated to recoup approximately 6.1 percent to 8.6 percent of this employment loss.
The infusion of stimulus dollars into Philadelphia households could directly generate $1.5 billion in new household income that will further induce somewhere between $1.2 and $1.5 billion in spending throughout the city. This is clearly a significant short-term economic boost to Philadelphia’s recovery, and helpful to its citizens.
But this one-time government safety-net program is by no means a substitute for a vital and active private economy generating employment and income for all citizens. Its scale is small relative to the city’s economy: Philadelphia’s pre-pandemic economy, or annual gross product, was on the order of $120 billion, or $10 billion per month. It has experienced a crushing decline, and its recovery will be determined not by fate alone, but also by the city government’s actions to spur, not curtail, overall business growth— in all sectors and all across the city.
To help the overall economy recover and continue growing, the City needs to encourage businesses to locate, start, invest, expand, and stay in Philadelphia. This is what generates the necessary employment, income, and hence the demand for small and minority businesses to grow successfully. No efforts to help our poorest citizens, or the struggling small and minority businesses throughout the city, will be successful unless Philadelphia’s overall economy regains its strong growth again.
Rebecca DeJoseph, Director | firstname.lastname@example.org
Rebecca DeJoseph is a Director at Econsult Solutions, Inc. In addition, Ms. DeJoseph is currently an instructor in Economics and Statistics for The Community College of Philadelphia. Prior to joining ESI, Ms. DeJoseph worked as a senior economist in the Economic Analysis and Information branch of the Bureau of Labor Statistics.
Julia Flanagan, Analyst | email@example.com
Julia Flanagan is an Analyst at ESI. She has experience in econometrics, macro and microeconomics, and international trade. Prior to working at ESI, Julia was an International Trade Associate with the U.S. Department of Commerce where she conducted market research to assist in consulting small to mid-size companies exporting to global markets.
 The current total job loss is calculated using January 2021 preliminary total nonfarm employment figures.
 Philadelphia City, PA Total Nonfarm Employment, State and Metro Area Employment, Hours, & Earnings, U.S. Bureau of Labor Statistics, March 2021
 Individual taxpayers are eligible for a full stimulus payment if their adjusted gross income (AGI) is $75,000 or less. Additionally, joint returners with a combined AGI of up to $150,000 and head of household filers with an AGI of up to $112,500 are eligible for the full $1,400 stimulus payment for themselves and any dependents claimed in the last reported tax year. Those with marginally higher AGIs may qualify for proportionately-decreased phaseout payments. The upper bound for receiving a third-round stimulus check is as follows: AGI of $80,000 for single filers, AGI of $160,000 for joint filers, and AGI of $120,000 for heads of households.
 “H.R. 1319 — 117th Congress: American Rescue Plan Act of 2021.” www.GovTrack.us. 2021. March 23, 2021, <https://www.govtrack.us/congress/bills/117/hr1319>