Insights Blog

Chart of the Month | Recession Impacts on Employment and Wages

Written by Ivo C. Nenin | Nov 3, 2020 3:43:09 PM

It may come as a surprise to many that average disposable personal incomes have increased by 6.6 percent from February prior to the pandemic through August. This is down from a high of 9.8 percent in July as employment picks up and government unemployment assistance declines. As a result, U.S. consumers are in better shape than might be expected, as a 10 percent decline in spending has resulted in large increases in savings. Not all groups have been affected equally as seen by employment declines by wage level and ethnicity. Lower wage industries such as leisure and hospitality and retail experienced a 33 percent drop in employment in March and even after rebounding somewhat, are currently still 13.3 percent lower than before the pandemic. Conversely, higher paying industries such as information technology, financial services and utilities have reported just a 5.6 percent decline. From an ethnicity standpoint, unemployment among Blacks and Hispanics stands at 12.1 and 10.3 percent, respectively, versus only 7.0 percent for Caucasians. This bifurcation demonstrates that the pandemic and resulting recession have exacerbated the persistent income and inequality issues that the country faces. At the same time, the lower wage consumer has benefited from a large injection of government support programs, including increased unemployment benefits and stimulus checks. In April, the CARES Act provided $1,200 per adult or up to $3,400 for a family of four making less than $99,000 per year, increasing lower wage workers’ disposable incomes by more than 30 percent. The timing and shape of another potential wave of stimulus are impossible to predict at this point. As result, the investment community will be challenged in trying to estimate the long-run sustainable level of consumption for these cohorts and the overall consumer.