When state and local governments began shutting down part of the economy to stop the spread of the coronavirus, tens of millions of Americans lost their jobs. They had no income except modest unemployment if they could get through to file, and they still had bills to pay.
Then two things happened. The U.S. government topped up all unemployment with $600 per week, so now an estimated 68% of those who qualify for unemployment make more by staying at home, and creditors offered deferral programs so that people didn’t have to make house payments, car payments, or even credit card payments.
Rachel Finchum, 55, who lost her job at a T-shirt printing company after 18 years, said:
“I’m very scared to think I may not be able to make my bills. With my future so uncertain, I have a house payment and bills based on 18 years of what I was making.”
And it gets worse.
Oxford Economics’ Gregory Daco estimated that the combined cash aid offered in the U.S. provided $3 in support for every $1 in lost income in April. The cash windfall increased personal income by a whopping 10%. When the extra bucks go away the nation’s income will be falling from a higher level than it was before the payments.
The money from the government created a short-term sugar rush, and we’re about to go through the withdrawal period, which will hurt us all by taking more wind out of the economy.
The pain won’t be felt evenly. Low-income spending is down about 3% from pre-crisis levels, while high-income households pulled back by 13%. In short, rich people saved more during all this.
With the Federal Reserve Bank of Atlanta forecasting a 46% drop in GDP in the second quarter, things could get dicey in the second half of the year.