Donald Trump may have normalized cognitive dissonance for many of his supporters and some young people. But wishing away the pandemic does not affect reality. The May data on personal incomes released last week by the Bureau of Economic Analysis (BEA) is a serious case in point. The data show that our nearly singular failure to wrestle the pandemic to manageable proportions has cut quickly and deeply into wage and salary income across the country. The only force staving off desperate conditions for many households was the one-time checks the government sent most Americans and the temporary expansion of jobless benefits.
Now with the resurgence of COVID-19 infections, Congress has little choice but to approve another round of checks and extend the generous unemployment benefits. If Congress does approve a lot more help, millions of American households will still face financial peril – and if Congress fails to step up again, tens of millions of Americans could confront financial ruin.
As a dose of reality, the new income data show that our current conditions are roughly three times as severe as the Great Recession. All personal income fell 4.2 percent in May and 3.0 percent over the three months from March through May. It took nine months for personal income to fall that much during the Great Recession. Wage and salary income actually increased by 3.3 percent in May, as the payroll grants under the CARES program kicked in and businesses began to reopen. Even so, wage and salary income fell 7.9 percent from March through May, again more than during the entire Great Recession.
The reason that total personal income fell “only” 3.0 percent over the three months—the steepest drop on record—while total wage and salary income fell an astounding 7.9 percent in three months was due almost entirely to those government checks and jobless benefits. After setting aside government transfers, the BEA reports that total personal income fell 7.5 percent in three months.
We seem headed now for another round of the pandemic that looks much like March through May. In March, as the virus quickly spun out of control, businesses began to shut down by mid-month and Congress expanded jobless benefits. By April, with millions of businesses shuttered or struggling, and wage and salary income falling 7.7 percent in one month, the government sent out the emergency checks. By May, as the spread of the virus slowed after physical-distancing measures were imposed across the country, many businesses began to reopen, so wage and salary income rose.
Yet through it all, the Trump administration never put in place nationwide testing and contact tracing. Lulled by the president’s baseless assurance that he had beaten back the pandemic, millions of people resumed their lives without bothering to social distance, wear masks, and take other basic precautions. So now, in late June, we find ourselves headed back to where we were in March. Across much of the country, the virus is spinning out of control again, and state governments are beginning to shut down businesses they let reopen in late May and early June. The business shutdowns will likely spread again until new cases of COVID-19 fall sharply again, perhaps in August or September.
For a measure of what this could mean for the incomes of millions of Americans, especially if Senate Republicans continue to reject another round of emergency checks, recall the recent findings by the Federal Reserve that 37 percent of households cannot handle an unexpected $400 expense on their own. The agency recommended those people either charge it to their credit card debt, sell off some possessions, or try to borrow it from family, friends, a payday lender, or a bank – and that was in good economic times.
To be sure, the 3.0 percent drop in total personal income over three months has not hit everyone. Investors are fine, thanks to support from the Federal Reserve and Treasury: The S&P 500 was nearly 100 points higher on June 29 (3,053.24) than on February 28 (2,954.22). Alas, the 58 percent of households those earning less than $50,000 account for 1.8 percent of all capital gains income. But set that aside and approach what’s happening to personal income as an average income loss of 3.0 percent for everyone. That would translate into a $1,858 shortfall for a median-income household ($61,937 in 2018)– nearly five times what 37 percent of Americans said they couldn’t handle when the economy was growing.
If phase two of the pandemic unfolds like phase one, personal income and total wages and salaries will fall substantially further. If income losses over the next three months are comparable to what already happened in March through May, a median income household could face an average income hit of $3,718 with another round of government assistance and an average hit of $6,503 if government help doesn’t come through a second time.
Congress will likely step up again, and the president will try to claim credit. But for the majority of Americans with few resources beyond their paychecks and home equity, this pandemic and the administration’s bafflingly inept response will scar their financial well-being for a long time.