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Child Tax Credit: An Underappreciated Stimulus

The Cowen Insight

Starting July 15, 2021 ~39 mm households will begin receiving monthly bank deposits through year-end, totaling ~$150 bn in 12 months. This is a notable shift in policy that we view as an underappreciated catalyst for discretionary consumer spend.

Herein we provide perspectives on the affect it can have on multiple sectors including airlines, alcohol, tobacco & cannabis, eCommerce, grocery, IT hardware, lodging, restaurants, retail, and consumer brands.

Stimulus Is a Huge Policy Change

The $1.9T American Rescue Plan (ARP) from March 2021 continues to pay historic policy dividends. It has set up arguably the largest expansion of the welfare state since LBJ’s Great Society.

Starting July 15, 2021, ~39M households (~90% of US kids) will receive checks/direct deposits. Checks will continue to go out each month on the 15th through year end, except when that falls on holidays and weekends. The timing takes into account family budgeting.

The ARP raised the $2K yearly CTC. It is now $3K for kids 6-17 and $3,600 for kids under age 6 ($250 and $300 monthly payments respectively). The ARP made the CTC fully refundable & shifted to periodic payments starting on July 15.

It is currently, a one-year program, though we expect it to be extended through 2025 via reconciliation later this year. A huge policy change, this is universal basic income for low-middle income parents. This expansion is the primary policy that the Biden administration believes can cut childhood poverty in half.

Grocery Retail

During the pandemic many Americans got into a habit of cooking at home for the first time. Demand for groceries skyrocketed; this segment’s PCE increased +10.5% y/y in 2020.

Following a historic 2020, grocery PCE was expected to decline in 2021 by 3.7%, prior to the child tax credit benefit. The CTC could provide +40-70 bps tailwind to 2021 Grocery PCE, softening the category decline.


Restaurants benefit from increases in disposable personal income. Assuming a 4-5% share of disposable personal income continues to be spent at restaurants, this will generate an additional $6 to $7.5B of incremental restaurant spend on an annual basis. This represents a 1.0% to 1.2% tailwind to industry sales relative to 2019 levels of $578B.


Given the breadth of products within eCommerce and its increased importance since the onset of the pandemic the sector is expected to be direct beneficiaries of the CTC.

Softlines Retail

Retail sales indexes are currently running three standard deviations above their 20-year growth trends. Clothing and Footwear represents $400B in annual consumer spending, and 3% of PCE. If 3% to 4% of stimulus is spent on the category, then it would equate to $4.5B to $6B in incremental spend and support a robust Back-To-School/Holiday environment.

Alcohol, Tobacco, and Cannabis

Alcohol, tobacco, and cannabis generate close to $400 bn in annual consumer spending, and represent 2.6% of PCE, which proportionately would equate to ~$4 bn in proposed stimulus.

IT Hardware

Increasing consumer discretionary spending is a slight positive for the IT hardware space. The phasing in of child credits coincides with back-to-school and end-of-the-year holiday spending. These have been historical drivers of personal electronic purchasing and could benefit wearables and laptops.

Hotels & Online Travel

Total lodging spend in the US was $270B (est.) in 2019, including about $180B in Leisure spend. While hotels & motels are only 0.8% of all PCE, we believe this somewhat undercounts broader lodging spend. Restrictions during the pandemic have created pent-up demand, including unused paid time off days. This will likely make travel a larger-than-normal percentage of spending for many consumers over the next 18+ months.


The three largest US airlines get half their revenue from 85% of their traffic, which is the leisure component. The ultra-low-cost and low-cost airlines get 95% of their revenue from this cohort. Leisure demand is back to pre-pandemic levels as tourist attractions and restaurants reopen. People are traveling this summer in the “jailbreak” forecast earlier this year.