America's two coronavirus realities
The coronavirus-driven recession is creating two parallel economic realities and they are growing further apart by the day.
What's happening: Many people with financial assets and white-collar jobs have actually benefited from the economic downturn, while the rest of the country is doing its best to stay afloat.
Evidence of a "K-shaped recovery" — in which some Americans' fortunes rise while others fall — is already visible, Peter Atwater, an adjunct lecturer at William & Mary, tells Axios.
- Wealthy and middle-class asset holders have retained or resumed their jobs. And the value of their assets, like stock portfolios and homes, has risen to all-time highs.
- The average blue-collar worker or small business owner, and the half of the U.S. population not invested in the stock market, are witnessing unprecedented job losses and business closures.
- As of Saturday, more than 20 million no longer will receive $600 a week in unemployment benefits.
How it happened: A massive $3 trillion bond buying spree by the Federal Reserve and more than $2 trillion in relief spending from Congress have underpinned asset prices.
Why it matters: The divergent realities are guiding policymakers as the wealthiest Congress in U.S. history has yet to pass further relief efforts despite continued urging from economists and market analysts.
The big picture: This is all happening as the U.S. labor market undergoes a long-term transition and likely consolidation, with a smaller number of bigger companies moving to automation and more decentralized technology, Wendy Edelberg, director of The Hamilton Project and a senior fellow at the Brookings Institution, tells Axios.
- That will further benefit white-collar workers, large companies and the wealthy, who happened to also be disproportionate beneficiaries of the recovery following the 2008 global financial crisis.
- "Those trends were already happening but they are being significantly accelerated," she says.
On the other side: The housing market is on fire — U.S. home prices hit a record high last month with both new and existing home sales showing double digit gains while the number of Americans in forbearance programs has fallen for six straight weeks, the Mortgage Bankers Association reported today.
- That's largely because the recession is disproportionately hitting those who rent, notes Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Like big businesses, wealthy individuals are now hoarding their cash. The U.S. savings rate rose to a record 32.2% in April and was at 23.2% in May. It was around 8% in February and for most of 2019.
- That increase comes from the wealthy, as working class Americans on average have little or no savings, Joe Brusuelas, chief economist at tax services firm RSM, notes.
- Spending by high income consumers has fallen by nearly 10% since January, compared with a 5.3% decline by middle-income consumers and a 2.1% drop by low income consumers.
The bottom line: "Vulnerability, which we don’t naturally think of as the opposite of confidence, is what we’re beginning to see ripple through the economy," Atwater says.
- Atwater points to a "broader sense of vulnerability" present in growing street protests in places like Portland and Chicago, but also rising xenophobia, increasing hostility toward China and a spirit of "mounting nationalism" that is causing companies to reroute supply chains and pull back on globalization.