Low-Income Families Burned Through Two-Thirds Of Stimulus Cash Buffer By October

As you may have noticed, recent data suggests the world’s largest economy is losing momentum.

The labor market grabs most of the headlines, and rightfully so. After all, headline prints on, for example, ADP, NFP, and weekly claims aren’t just numbers — those figures represent actual people.

And while one can draw some conclusions from November’s disappointing jobs report and two weeks of above-consensus initial jobless claims, the real canary may have been retail sales. While the release was overshadowed Wednesday by the Fed meeting, the numbers weren’t good. Not only was the November decline nearly four times larger than consensus expected, October’s increase was revised to show a drop.

Read more: Retail Sales Dive As Feared Consumer Retrenchment Becomes Reality

That’s bad news for a consumption-driven, services-based economy, where the services sector is under pressure from new lockdown measures associated with the virus containment effort.

The downbeat read on November retail sales served as a kind of exclamation point on government data showing incomes fell and spending decelerated in October, a month that also saw revolving credit drop to a three-year low.

On the off chance you needed further confirmation of the trends, JPMorgan Chase Institute was out this week with new, granular data that shows the trajectory of checking account balances by income quartile covering some 1.8 million American families over the course of the last two years.

It won’t surprise you to learn that, as the Chase researchers write, “compared to high-income families, low-income households experienced the largest year-over-year percent increase in median balances in April but the largest decrease in balances since then.” In other words, poorer families saw their checking account balances rise the most as a percentage of pre-stimulus- check levels, and have since witnessed the largest drop from the peak.


For reference, “1st income quartile” in the figure refers to households that earned between $12,000 and $30,267 in labor income.

“Median trends diverge from the mean picture most notably for low-income families,” the Chase Institute went on to say. While the initial percentage increase for the lowest income bucket was more than 100%, those balances were just 45% above pre-pandemic levels by October. The comparable figures for the fourth quartile, defined as households earning more than $68,795, were 40% and 25%.

Obviously, the picture is different if you measure in dollar terms (as opposed to as a percentage of pre-pandemic levels). Specifically, households in the fourth quartile saw the median dollar balance of their checking accounts rise by as much as $1,300 versus 2019 during the spring. That figure came down to around $800 by October. For lower-income households, the median balance was up by $700 in April versus last year, but by just $250 in October.

“Put differently, by the end of October, the highest earners had lost 38% of their gains relative to the prior year, while the lowest earners had lost 64% of their gains,” the report said, on the way to noting the obvious: “If these trends continue, we would expect low-income families to deplete their account balance gains sooner than their high-earning counterparts.”

That’s bad news for spending because, for the umpteenth time, the less money you have, the more likely you are to spend any incremental dollars you come across.

JPMorgan’s policy group concludes by saying that as of October, “household checking account balances were still 40% higher than the same time last year [but] median balances are falling, especially for low-income families.”

The implication is that cash buffers are being depleted, and more rapidly so for the families that are most likely to spend. If these trends continue, Chase Institute warns, “many families may become financially vulnerable in the coming months as relief programs expire.”

While it’s tempting to suggest that an economy which is relying on artificially inflated cash buffers is a false economy in the first place, that’s an exercise in question-begging. That is: Fiscal stimulus papered over the depression. That was the whole point. Developed nations deliberately engineered a false economy in order to avert a catastrophe. But the damage from a deep recession doesn’t just disappear over the course of six months or nine months. This is why you can’t just rip off the proverbial Band-Aid. If you do that, millions of Americans will suddenly be forced to confront the worst economy in decades without anything in the way of a safety net.

Congress still hadn’t agreed on a new stimulus package as of late Friday afternoon, but they likely will over the weekend. I would reiterate that the data from Chase presented above is from October. One wonders what the situation looks like now, headed into the holiday shopping season. November’s retail sales data doesn’t seem to bode well in that regard. And neither does the latest data from the labor market.


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3 thoughts on “Low-Income Families Burned Through Two-Thirds Of Stimulus Cash Buffer By October

  1. Regarding the pending/potential new stimulus bill, I’ve read that the new $300 per week federal unemployment supplement will not be retroactive to early September 2020 (when the last $300 per week federal unemployment supplement ended). For the 5+ million people continuously on the unemployment rolls since early September, I’m sure many have been scraping by/deferring purchases. If the White House and Congress were serious about boosting the economy, they would make this $300 per week retroactive. Instead, I’ve read the proposed language has it kicking in starting Dec 26th… so while more “papering over”, they’re leaving a big gaping hole.

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