For those making $60,000 or more, the recovery is complete.
That’s one takeaway from data gathered by the Harvard-based Opportunity Insights Economic Tracker, which, as the project’s website explains, “combines anonymized data from leading private companies to provide a real-time picture of indicators such as employment rates, consumer spending, and job postings across counties, industries, and income groups.”
As of midway through December, employment for the highest income cohort was actually up (albeit only slightly) from mid-January 2020, just before the first case of COVID-19 was identified in the US.
Even during the worst days of the nationwide lockdown, employment for those earning $60,000 or more never fell more than 13%, according to this data. The low point was on April 16, when employment was lower by 12.8%. Within a month, it had recovered to just a 5% decline. By June 16 (so, two months from the trough), employment for those making $60,000 or more had almost fully recovered.
As the figure shows, the juxtaposition with lower-income Americans could scarcely be more stark. During the darkest days of the first pandemic lockdowns, employment for those making $27,000 or less was down by nearly 40%.
The recovery for the poor (and, let’s face it, if you’re making less than $27,000 per year, you’re poor — the only possible exception would be situations where two or more people are cohabitating and sharing expenses), the recovery stopped in July. And that’s unfortunate because it was at the end of July when benefits under the first massive federal relief package began to lapse.
More disconcerting still, the blue line in the figure (above) shows that the situation began to deteriorate anew for lower-income Americans after Thanksgiving. There were matching declines for middle- and higher-income earners, but they bounced back. Through December 13, the same recovery was not evident for the lower-income cohort. (The data after October 22 appears to be provisional — it’s shown with a dashed-line in the original. Opportunity Insights includes this note: “The series is based on data from Paychex and Intuit, worker-level data on employment and earnings from Earnin, and timesheet data from Kronos.)
Of course, this is hardly surprising. After all, nearly a half million leisure and hospitality workers lost their jobs in the December NFP period.
I’d also note that, in the Opportunity Insights data, the trajectory of the recovery flatlined for low-wage workers long before nonfarm payrolls posted the first monthly decline of the COVID era. It wasn’t until last month that the headline NFP print turned negative. But the improvement for lower-income Americans stopped four months previous, according to the data cited above.
It’s now painfully obvious (and “painfully” can be taken literally for many Americans) that overt, direct efforts must be made to ameliorate the situation described above.
I’ve talked at length about the extent to which the largest economy on Earth operates on borrowed time. It’s a Ponzi scheme, of sorts. As Deutsche Bank’s Aleksandar Kocic put it in April, “the truth is simple.”
What is the “truth”? Well, as Kocic explained at the time, “a surprisingly large segment of the population is practically one paycheck away from some kind of insolvency.”
“In the absence of a major disruption, the system is capable of moving along by collecting small installments of rent (‘clipping the coupons’) from a large segment of the population,” he said. “However, if an exogenous shock disrupts the fragile order of these cashflows, there is a chain reaction of collective insolvency ready to sink the entire system.”
The renewed downturn in leisure and hospitality employment last month and subsequent drop in retail sales was yet another testament to how fragile that system really is, something I elaborated on in “Here’s The Real Problem With December’s Jobs Report” and also in “America’s Economic Model Is Unsustainable. Empower The 4.”
I never tire of quoting myself. I’ve been humbled and had more Icarus moments in my life than most men, but a small fraction of my old arrogance remains, and manifests harmlessly these days in my penchant for citing my own writing. With that in mind, the following description and accompanying pseudo-prediction is, in my opinion, especially poignant:
A disproportionate amount of economic activity is accounted for by consumption that takes place at restaurants and retail stores. The people doing the eating and the shopping are, by and large, not making much more than the people serving the food and stocking the shelves, precisely because they are the same people (in an economic sense).
How is that sustainable? It’s circular to the point of absurdity. The people providing the services for meager wages are in most cases the same people consuming them when they’re not providing them.
This is why supply-side economics doesn’t work. Handing out tax breaks to the rich can’t possibly make an impact because the rich aren’t generally participating in this not-at-all virtuous loop, unless it’s to pay nearly as much for one Starbucks drink as the barista “crafting” it makes in an hour.
If you think any of that is going to change just because America (narrowly) decided to cancel “Celebrity Apprentice: White House Edition,” you’re wrong. The next four years will witness a return to sanity and, hopefully, a restoration of civility, but for everyday people, the economic reality will be the same as it ever was, if not worse depending on how efficient the COVID-19 vaccine rollout goes.
I hope I’m wrong. The problem, though, is that even if I’m only partially correct in my assessment of where we’ll be in four years, the electorate will be just as vulnerable to dangerous narratives as it was in 2016.
America needs heavy-handed federal intervention to close the wealth gap and ease the socioeconomic tension.
Before you shout “socialism!” or “communist!” know this, dear reader: The dynamics are exponential, not linear.
That means that even if you consider yourself “rich” currently, you will find yourself falling further and further behind those richer than you. And they will find themselves falling further behind those richer than them.
This isn’t “healthy” capitalism or some kind of virtuous “meritocracy.” Rather, it’s a perpetual motion machine of inequality creation.
It makes gods of a few (e.g., Jeff Bezos and Elon Musk) and renders everyone else a pauper. If not in the sense that you’re starving (as so many Americans are), at least in a relative sense.
Let me put this in terms that my affluent readers can understand. When you go to trade in your mid-sized luxury sedan in five years, you may discover that an E-Class is going to cost you nearly as much as an S-Class would have run you previously. And it won’t be because of “regular” old “inflation.” It’ll be because you’re getting priced down the Mercedes line as a result of the dynamics described above. Before you know it, you’ll face the “terrifying” prospect of being a C-Class driver.