Most Americans are concerned about the impact of the pandemic and related shutdowns and business closures on the U.S. economy, and on their local economies and personal finances. State and federal government officials speak regularly about weighing the direct health risks of Covid-19 against the fallout from economic conditions created by extensive precautions.
Nationally, weekly new unemployment claims peaked at 6.9 million in March, but continue to run high. In April alone, more than 325,000 new unemployment claims were filed in Alabama. Unemployment in the state reached 13.8%. New claims dropped in May and so did the unemployment rate, but both remain high. The Alabama unemployment rate in May 2020 was 9.9%, compared with 3% one year earlier.
In Mississippi, unemployment reached 16.3% in April and remained over 10% in May. Tennessee peaked at 15.5% but was holding at 11.3% in May. Many large retailers around the country are shutting down locations, some even entering bankruptcy. As of late March, the National Restaurant Association was estimating that about 3% of restaurant operators nationwide had already closed their doors forever. Another study estimated that nearly 2% of small businesses were out of business by mid-May, for an estimated total of more than 100,000. And, some project that number will reach into the millions before the country stabilizes.
In short, the situation looks bleak. And, we know many Americans are struggling. So, the conclusion reached in a recent report from Brookings Papers on Economic Activity may come as a bit of a surprise.
Poverty is Down During the Pandemic
Income and poverty in the COVID-19 pandemic, released on June 25, indicates that the percentage of Americans living in poverty has declined as millions of people have been thrown out of work. In January and February, as the pandemic was quietly getting underway, but business hadn’t yet been disrupted, the U.S. poverty rate was 10.9%. In April and May, amidst the largest decline in employment in history, the poverty rate dropped to 8.6%.
Unfortunately, it appears the good news will be short-lived. Researchers determined that government programs accounted for more than the full amount of the decline. In other words, government programs offset what would otherwise have been an increase in poverty rates. Specifically, Economic Impact Payments (EIPs) issued by the federal government accounted for more than half of the decline in the poverty rate. Expanded unemployment insurance programs also had a significant impact.
Poverty declined across demographics such as age and race. But the impact is concentrated at the lower end of the income spectrum, where the $1,200 stimulus payment and the bump in the level of unemployment compensation had the largest impact on household income. And, with enhanced unemployment benefits having expired at the end of July and no additional stimulus payment guaranteed, the true impact of the pandemic on household incomes and poverty is likely to emerge.
In fact, households are already reporting increased financial stress. The U.S. Census Bureau’s Household Pulse survey data for the week of June 25-30 showed that 20,435,450 Americans aged 18 and older sometimes didn’t have enough to eat, and another 4,923,569 often didn’t have enough to eat. Those numbers were up from 19,392,046 and 4,672,608 in late April, when Household Pulse data was first assembled. That’s more than a 5% increase in the number of people who were sometime or often short on food in just two months.
The trend has been similar for those struggling to make rent or mortgage payments. During the last week of June, more than 9 million people had no confidence they’d be able to pay the next month’s rent, and nearly 14 million others had only slight confidence. Among mortgage holders, the numbers were lower but still striking: more than 4.8 million reported on confidence in their ability to make their next mortgage payment, and more than 10 million had only slight confidence
Without further government intervention, this financial insecurity will likely continue to grow. The reopening of the economy has stalled or even moved backward in many areas as new Covid-19 infections soar. And, many businesses have closed permanently or will be returning with leaner budgets and leaner staffs.
It’s still possible that the federal government will offer another stimulus payment or further extend unemployment benefits. But, any solution along those lines will have the same temporary impact as the last round, helping to avoid an abrupt loss of resources but not fully solving the problem. With unemployment high and many people at risk if they return to the workforce, we can expect some difficult days ahead.
Now is the time to explore your options and look for safety nets to maintain stability in the unpredictable days ahead. If you’re in a position to set money aside, build your emergency fund as much as you can. Educate yourself about any assistance that may still be available, what will be required to qualify, and how long you can expect relief to take. Explore creative options for bringing in money. And, consider whether shedding debt might cut your monthly obligations to a manageable level.
The attorneys at Bond & Botes have been helping people get out of debt for decades and are happy to provide the information you need to make smart decisions about your financial future. During the pandemic, we are offering absolutely free initial consultation with an experienced attorney. Better yet, the consultations can be done by phone of video so that you don’t need to leave the comfort and safety of your home or office. You can schedule a free consultation right now by calling 877-581-3396 or filling out the contact form on this page.