May 26, 2021

Axios Markets

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💡 ICYMI: This is my last week at Axios and tomorrow will be my last day as your humble newsletter writer. For those of you asking what I'm doing next, I can't say just yet but follow me on Twitter and I'll post the details there as soon as I can.

🎙 "There’s always some kid who may be seeing me for the first time. I owe him my best." - See who said it and why it matters at the bottom.

1 big thing: The Morning Consult/Axios Inequality Index
Data: Morning Consult/Axios Inequality Index; Chart: Axios Visuals

The coronavirus pandemic has rocked the U.S.economy in myriad ways and one of the most important has been the impact on economic inequality, which has been spotlighted by top economists, including Fed chair Jerome Powell.

Why it matters: It is a growing subject of discussion among everyday Americans and carries weight among economists because persistent or increasing inequality can cast doubt on the fairness of America’s economic system and undermine the sustainability of economic growth.

What it is: Unlike the well-known Gini coefficient, the Morning Consult/Axios Inequality Index does not measure the distribution of income or wealth, it measures the movement of inequality — how much it has increased or decreased based on four important economic variables detailed below.

  • The index measures economic outcomes across income groups on a monthly basis to show whether the U.S. is becoming more or less economically equal.

What it says: Having tracked data through Morning Consult's daily surveys of 260,000 Americans per month, the index shows that inequality decreased for most of 2021, but picked up in May.

What it means: "We had unprecedented stimulus in December and then again in March and over that period of time we’ve seen the Morning Consult/Axios Inequality Index decrease ... but we’re now at a point in May where the sugar high from the second and third stimulus has worn off," Morning Consult chief economist John Leer tells me in an interview.

State of play: Following the passage of the $1.9 trillion American Rescue Plan in March inflation worries have grown and Congressional Republicans have pushed back against big-spending stimulus measures, even President Biden's infrastructure proposals, which are paid for by fees and increased taxes on the wealthy.

  • That makes another stimulus package unlikely and could mean that in September when enhanced unemployment benefits and eviction and foreclosure moratoriums expire many of the nation's low-income residents will be on their own and facing major liabilities.

Be smart: "The way policymakers had hoped this would play out is we would have the December stimulus and then the American Rescue Plan that would jump-start consumer spending and that would result in an increase in employment, which would be sustained as the economy reopened over the summer," Leer says.

  • "Given the disappointing jobs report that we saw last month and decreases in retail spending in April as well it’s unclear that we’re in this self-sustaining economic recovery mode right now."

The bottom line: The index is showing that without another lifeline lower-income Americans could be in for a difficult 2021, which would challenge the lofty growth expectations economists and asset managers have laid out for this year.

  • "We’re at another turning point where we had these four months of decreasing inequality and now we can see how the economy responds in the absence of such intense fiscal intervention," Leer adds.
2. Pay loss expectations
Data: Morning Consult/Axios Inequality Index; Chart: Axios Visuals

Worries about job losses and/or having hours cut and losing income are decreasing across the board but inequality ticked up in May, according to the Morning Consult/Axios Inequality Index.

How it works: The values of the index answer the question "how differently are U.S. adults with annual incomes below $50,000, between $50,000 and $100,000 and over $100,000 experiencing the economy?"

  • The higher the index value, the more differently adults across the income spectrum are experiencing the economy.

What happened: This data is based on survey respondents' answers to the question, "Do you expect that you will experience a loss of employment income in the next 4 weeks?"

How to read it: "The values are represented as standard deviation across income groups for the monthly averages for each, so the graph represents the differences among the income groups with regard to expectations of pay loss since April 2020," Leer explains.

  • In essence, a higher number means worries of job or income loss are rising more for lower-paid workers than they are for those with higher wages.

The big picture: "Middle- and low-income workers finance most of their purchases, if not all of them, through wages from working, so getting the jobs recovery up and running is just going to be absolutely paramount, both for the economic recovery and for making sure that it’s broad-based."

3. Lost pay income
Data: Morning Consult/Axios Inequality Index; Chart: Axios Visuals

Vaccine rates are increasing and COVID-19 cases are declining, which is opening up businesses and driving job growth that looks broad, making inequality in actual job losses relatively low.

What it means: This data is based on whether or not survey respondents have lost pay or income in the past four weeks, rather than whether they are worried about losing it. This is also represented as standard deviations.

By the numbers: With a reading of 1.7, the employment outcomes metric is the lowest of all four index components.

What we're hearing: "While the employment outcomes graph looks a bit flat, it did fall pretty notably over the past few months," Morning Consult's Leer says in an email.

Between the lines: "That dataset is looking at the share of people who have lost pay or income, so if you've lost your job once and are still looking for work, you are unlikely to be counted as losing your job again," he adds.

  • "This explains why it looks a bit flat compared to financial vulnerability, a factor that can fluctuate more dramatically."
4. Financial vulnerability
Data: Morning Consult/Axios Inequality Index; Chart: Axios Visuals

Conversely, the index's highest component is financial vulnerability, suggesting those with lower incomes are feeling it significantly more than their higher-paid counterparts.

What's happening: Financial vulnerability relates to the share of Americans who cannot cover basic expenses for a single month with their savings. This is also represented as standard deviations.

What we're hearing: "When it comes to financial vulnerability, the high level of inequality is a feature of the data," Leer says.

  • "It is inherently a much bigger issue for lower-income people than higher-income people, since higher-income people do not generally struggle to pay their bills. So, the differences among income groups has remained larger over time."

Yes, but: The index measures whether individuals can pay their bills rather than if they have a set amount of money set aside. That makes it a more accurate proxy for inequality, as higher-income earners tend to also have higher bills.

Watch this space: Rising financial vulnerability and increasing inequality put the economy and policymakers in a "precarious position," Leer says.

  • "What this data show is there are groups of people that are not experiencing the rebound in economic activity the same way."
5. Consumer confidence
Data: Morning Consult/Axios Inequality Index; Chart: Axios Visuals

The consumer confidence component of the index simply breaks up daily consumer confidence readings among the three different income groups and details the difference between them.

  • Unlike other categories, it has steadily increased since May 2020 but is beginning to move downward.

Watch this space: Inequality in consumer confidence is the only index component that is nearly triple its level from May.

  • In May 2020, consumer confidence among individuals earning $50,000 or less was 7.1 points lower than for individuals earning more than $100,000.
  • In May 2021, the difference between the two groups was 18.2 points.

But, but, but: "I think it's premature to say this recession will result in increased inequality," says Leer.

  • "That depends a lot on policy decisions that have yet to be made."

For a detailed explanation of the index's methodology click here.

Thanks for reading!

Quote: "There’s always some kid who may be seeing me for the first time. I owe him my best."

Why it matters: It's my last week, so I'm just posting quotes I like. Today's quote comes from Joe DiMaggio. It's something I've always tried to live by.

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