By Harriet Torry

Early signs point to an uptick in consumer spending at the start of the year, particularly by lower- and middle-income households receiving payments through the most recent Covid-19 relief package.

Spending by consumers who make less than $60,000 a year jumped by more than 20% in the week ended Jan. 10 -- the week after the U.S. Treasury Department began electronically sending stimulus payments of $600 per adult and $600 per child for individuals with adjusted gross incomes under $75,000 -- according to the research group Opportunity Insights' tracker of figures from Affinity Solutions, which collects consumer credit- and debit-card spending data.

Spending by households making above $100,000 by contrast, was broadly flat compared with January 2020 that week.

Among households receiving stimulus payments, 88% spent their $600 check "like it burned a hole through their pocket," said Jonathan Silver, chief executive of Affinity Solutions. That jump in spending shows there is "significant pent-up demand for necessities" while higher-income groups "pulled back the reins" on spending, he said.

Other data suggest an improving outlook for consumer spending. Weekly claims for unemployment benefits fell the week ended Feb. 6 to a level well below an early January peak, a sign layoffs are easing. Employers resumed hiring in January, when the unemployment rate declined to 6.3% from 6.7%. Newly reported cases of Covid-19 are down sharply from peak levels reached last month, according to Johns Hopkins data.

Economists surveyed by The Wall Street Journal expect the Commerce Department to report Wednesday that U.S. retail spending rose 1% in January from the prior month. That would mark an upturn after three months of declining retail sales -- a measure of purchases at stores, restaurants and online -- from October through December, usually key months for holiday shopping.

The latest stimulus checks were part of the $900 billion aid package President Donald Trump signed into law Dec. 27, which expanded the amount and duration of unemployment benefits available to millions of laid-off workers. The law extended two pandemic-related unemployment aid programs and provided supplemental $300 payments to all recipients of jobless benefits through March 14.

Aneta Markowska, chief financial economist at Jefferies Group LLC, said there was an instant inflection point in real-time card spending in the first week of January, when the stimulus payments hit bank accounts.

Consumer spending is the main driver of the U.S. economy, accounting for more than two-thirds of economic output. When the Covid-19 pandemic prompted stay-at-home orders and business restrictions last year, consumers curbed their spending on services such as dining out, travel and entertainment, causing millions of layoffs.

Enhanced unemployment benefits and stimulus checks are two ways the government attempted to mitigate the losses of jobs and income. Lawmakers are debating the size and scope of a third stimulus package.

Americans remain strained by the pandemic, according to recent consumer-confidence readings. On Friday, the University of Michigan Surveys of Consumers reported that its index of consumer sentiment fell in early February to 76.2 from 79 in January. The decline was concentrated in the measure of expectations of future conditions and among households with incomes below $75,000.

Spending on services remains depressed, though economists expect it to rebound when vaccines become more widely distributed and people feel safe enough to travel and dine out again.

Surveys and economic research on last year's stimulus payments found that lower-income households were significantly more likely to spend their checks than to save them or use them to service debt.

A recent paper by Federal Reserve Bank of Chicago economists studied the effects of the March 2020 Cares Act, which included a $1,200 cash payment for many households. They found that recipients who live paycheck to paycheck spent 62% of the payment within two weeks. Consumers with the highest pre-pandemic saving rate spent about 40% of the payment in the two weeks after receiving it.

Overall, the economists found that in the two weeks after receiving the $1,200 check, a consumer immediately increased spending by $604 on average. Walmart Inc. benefited in particular, with spending at the retailer increasing by $94 per person in the two weeks following the stimulus payment, according to the paper.

The coronavirus pandemic has created a divide between retailers, with big-box stores that sell household essentials including Walmart, Target Corp., Costco Wholesale Corp., Home Depot Inc. and Amazon.com Inc. enjoying strong sales gains, while department stores and retailers that sell apparel and accessories have struggled.

Visitor traffic to big-box retailers by consumers in households earning under about $46,000 a year gathered pace in January, according to the geolocation data platform Advan Research, even as visits to hotels, restaurants and leisure establishments remained muted.

Containing the virus will make the impact of future stimulus payments much more powerful, according to analysts. Even so, retailers continue to face challenges "because the demand environment is pretty uncertain, particularly on a near-term basis," said John Zolidis, a retail analyst and president of New York-based Quo Vadis Capital.

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

(END) Dow Jones Newswires

02-14-21 0544ET