Pandemic lockdowns across the U.S. that have caused businesses to be closed, jobs to be lost, and unemployment to skyrocket are taking their heaviest toll on poorer Americans, a new survey from the Federal Reserve Board shows.
That's nothing new - downturns usually impact the poorest of the population the most. But the extent of the economic decline among those with lower incomes because of virus-compelled economic shutdowns is eye-popping.
The overall statistics are bad enough. According to a Federal Reserve supplemental survey in April, from the start of March through early April, 19% of American adults reported losing a job, being furloughed, or having hours reduced. Among those with employment disruptions, the Fed reported, more than one-third expected to have difficulty paying their April bills.
Among adults, the report stated, 13%, representing 20% of people who had been working in February, reported they lost a job or were furloughed in March or the beginning of April, and those job losses were most severe among workers with lower incomes.
Indeed, the report continued, 39% of people working in February with a household income below $40,000 reported a job loss in March.
In addition to the 13% of adults who lost a job, another 6% said they suffered reduced hours or took unpaid leave, the report stated. All totaled, 19% of all adults reported either losing a job or experiencing a reduction in work hours in March.
As for the overall effects of the disruptions, the Fed reported both income and the ability to pay current bills were generally stable for a majority of Americans during the initial periods of the lockdowns.
But it was a far different reality for those who experienced employment losses. Among those groups, financial well-being was substantially lower, the survey stated.
"Eighty-one percent of adults said they could pay all the current month's bills in full in April, which was essentially unchanged from the fourth quarter of 2019," the report stated. "Yet, the survey found far greater rates of difficulty among those experiencing employment disruptions. Sixty-four percent of adults who reported a job loss or reduction in hours expected to be able to pay all their bills in full in April, compared to 85% of those without an employment disruption."
Powell: Hard to fathom
Speaking at the Peterson Institute for International Economics in Washington, DC, this past week, Federal Reserve Board chairman Jerome Powell said the rate of decline and resulting pain were hard to fathom.
"The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II," Powell said. "We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased."
Just in the past two months, Powell said, more than 20 million people have lost their jobs.
"This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future," he said.
In addition, Powell said, the downturn is different from preceding ones.
"Earlier in the post-World War II period, recessions were sometimes linked to a cycle of high inflation followed by Fed tightening," he said. "The lower inflation levels of recent decades have brought a series of long expansions, often accompanied by the buildup of imbalances over time - asset prices that reached unsupportable levels, for instance, or important sectors of the economy, such as housing, that boomed unsustainably."
This downturn is unique, Powell emphasized, in that it is attributable to a virus and the steps taken to limit its fallout.
"This time, high inflation was not a problem," he said. "There was no economy-threatening bubble to pop and no unsustainable boom to bust. The virus is the cause, not the usual suspects - something worth keeping in mind as we respond."
The U.S. has responded quickly, Powell continued.
"To date, Congress has provided roughly $2.9 trillion in fiscal support for households, businesses, health-care providers, and state and local governments - about 14% of gross domestic product," he said. "While the coronavirus economic shock appears to be the largest on record, the fiscal response has also been the fastest and largest response for any postwar downturn."
Beyond Congress, Powell said the Fed had rapidly cut federal interest rates to almost zero, and taken a wide array of measures to facilitate the flow of credit in the economy. The Fed chairman said the Federal Reserve takes actions such as those only in extraordinary circumstances, and, he said, the challenges facing the economy were indeed extraordinary.
But while the economic response has been timely and appropriately large, it may not be the final chapter, Powell continued.
"Economic forecasts are uncertain in the best of times, and today the virus raises a new set of questions," he said. "How quickly and sustainably will it be brought under control? Can new outbreaks be avoided as social-distancing measures lapse? How long will it take for confidence to return and normal spending to resume? And what will be the scope and timing of new therapies, testing, or a vaccine? ... Since the answers are currently unknowable, policies will need to be ready to address a range of possible outcomes."
Those policies may have to include more fiscal stimulus, Powell said, to avoid negative long-term outcomes.
"The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy," he said. "Avoidable household and business insolvencies can weigh on growth for years to come. Long stretches of unemployment can damage or end workers' careers as their skills lose value and professional networks dry up, and leave families in greater debt. The loss of thousands of small- and medium-sized businesses across the country would destroy the life's work and family legacy of many business and community leaders and limit the strength of the recovery when it comes."
Powell said those businesses are a principal source of job creation - something the nation will sorely need as people seek to return to work.
"A prolonged recession and weak recovery could also discourage business investment and expansion, further limiting the resurgence of jobs as well as the growth of capital stock and the pace of technological advancement," he said. "The result could be an extended period of low productivity growth and stagnant incomes."
Additional fiscal support for the economy could be costly, Powell said, but worth it if it helps avoid long-term economic damage and leaves a stronger recovery.
"This tradeoff is one for our elected representatives, who wield powers of taxation and spending," he said.
Richard Moore is the author of the forthcoming "Storyfinding: From the Journey to the Story" and can be reached at richardmoorebooks.com.
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