Most Americans are better off financially now than before the pandemic

davfor

In the for what it's worth category.....

Claudia Saum's way of thinking about and presenting economic data may be worth paying a little attention to. Reading this post somewhat reduced my sense a mild recession may be in the cards for 2024.

The majority of Americans are better off financially now than they were before the pandemic. Full stop. Not every American, but the majority. That’s true across demographic and income groups.

Better Off

Baseball_Fan

Nah, I don't think so... record amount of charges on credit cards, record amount of folks borrowing from their 401k, layoffs starting to rise...food still very expensive....

Old_Joe

"record amount of charges on credit cards"... yeah, I've been reading that one for over 70 years now...

"food still very expensive."... now that's for damned sure.

Observant1

Good article.
A large number of people have negative views regarding their financial status yet many people
still have "excess savings" from Covid stimulus checks, the economy is humming along,
the unemployment rate is very low, and inflation is declining.
Overall, folks just seem to be in a dour mood!
I can't wait until their outlook improves and they start shoveling the record $5.73 trillion
in MM funds into the stock market...

Mona

Old_Joe said:

"record amount of charges on credit cards"... yeah, I've been reading that one for over 70 years now...

"food still very expensive."... now that's for damned sure.

Yup. Every week that I shop at Aldi's, another item that I purchase is up in price. This week it's Clancy's Tortilla Chips up from $1.99 to $2.09 and Friendly Farms Light yogurt up $0.15.

stillers

The OP article states:

The majority of Americans are better off financially now than they were before the pandemic. ... Not every American, but the majority. That’s true across demographic and income groups. It’s in the aggregate and individual-level data:

That statement appears to be incorrect.

On this topic, the devil appears to be in the details according to this Fortune article from 09/25/23:

https://fortune.com/2023/09/25/pandemic-savings-richest-americans-federal-reserve-covid/

Excerpt (BOLD added):

Americans outside the wealthiest 20% of the country have run out of extra savings and now have less cash on hand than they did when the pandemic began, according to the latest Federal Reserve study of household finances.

For the bottom 80% of households by income, bank deposits and other liquid assets were lower in June this year than they were in March 2020, after adjustment for inflation.

The OP, 11/26/23 article author was a former Federal Reserve economist, so you'd think she'd have been aware of the referenced "latest Federal Reserve study of household finances" referenced in the Fortune article.

Maybe I'm missing something in the OP article, or something dramatically changed between Sept (Fortune article) and Nov (OP article).

hank

I can’t argue with the OP’s general conclusion that on average Americans are better off financially than they were prior to the beginning of the pandemic in March 2020. You can measure that in a lot of ways: home values, employment numbers, wages, etc. Reminds one of the 6’ fella who drowned in a river that was on average 5 feet deep.

One likely reason so many are better off is that the U.S.economy quickly rebounded from the pandemic induced trauma owing in no small part to substantial monetary stimulus by the Federal Reserve and also fiscal stimulus in the form of “stimulus checks” mailed directly to millions of Americans (under both the Trump and Biden administrations). How this comparison (March ‘20 with Today) ) relates to the investment process and what we as a community of investors should concern ourselves with? That’s a different question.

Lost in the discussion is the toll the 2022 stock market crash had on retirement savers. Unlike younger investors who could dollar average in when prices were low, seniors suffered outsized losses (see linked articles) in their retirement accounts. And there is some evidence now to suggest that more Americans are taking early hardship withdrawals from their 401K accounts - which I think @Baseball_Fan mentioned. (see linked articles).

Average American's retirement balance falls 4% as more and more savers dip into their later life savings to make ends meet”
https://www.dailymail.co.uk/yourmoney/401k/article-12771113/401k-account-balance-falls-quarter.html

How's your 401k doing after 2022? For retirement-age Americans, not so well
https://www.usatoday.com/story/money/personalfinance/2023/10/08/401k-balances-havent-recovered-from-2022-for-retirement-age-americans/70998934007/

BofA Report Finds Average 401(k) Balances Up Nearly 10% in 2023; More Participants Taking Hardship Withdrawals
https://www.prnewswire.com/news-releases/bofa-report-finds-average-401k-balances-up-nearly-10-in-2023-more-participants-taking-hardship-withdrawals-301895607.html

rforno

Three reactions:

1) The USA Today piece was interesting and I kept thinking "it all depends how and what you're invested in."

2) Reporters can find people to quote in support of any given thesis for an article, be it on Wall Street or Main Street. 5 publications, 5 different views ... no wonder people get confused!

3) When discussing individuals, I posit that the quantitative data from banks/brokerages based on 'retail' folks are a better representation of reality than wonky papers from the Fed or so-called 'economists.'

Major takeaway: IMO it all makes for interesting reading, but financial 'news' is seldom actionable or representative of the broader reality -- and moreso, often fails to reflect that each person's goals, tolerances, positioning, and strategies are different ... but such articles usually cater to the mass market, so they often paint with a broad brush and their sourcing reflects that.

Mark

d

msf

Perhaps you're missing the first paragraph in the cited piece. That first paragraph has a bullet list of five metrics for financial state, all of which are positive.

One of those is family wealth. Cash on hand is just one relatively small part of household wealth. Between 2019 and the end of 2022, median household wealth increased by 37%, adjusted for inflation. That's according to the cited piece, but why not go directly to the source, from the Federal Reserve?

Changes in U.S. Family Finances from 2019 to 2022 (Federal Reserve)
https://www.federalreserve.gov/publications/october-2023-changes-in-us-family-finances-from-2019-to-2022.htm

Between 2019 and 2022, real median net worth surged 37 percent, and real mean net worth increased 23 percent.

That was published in October, 2023. Perhaps the Fortune piece author (who was an economist for the World Bank, not the Fed) wrote the piece days before the Fed published its triennial survey.

Really though what matters are the dates the data cover, not when they are published let alone when they are reported in the mass media. The Fortune piece contained data only through June, not through Sept as implied in your last line.

To anticipate the suggestion that maybe household net worth dropped by 27% between the end of 2022 and the middle of 2023, here's another Fed table. It shows that aggregate household net worth (unadjusted for inflation?) increased by 2.98% in Q1 and by an additional 5.49% in Q2 2023.
https://www.federalreserve.gov/releases/z1/20230908/html/recent_developments.htm

msf

I can’t argue with the OP’s general conclusion that on average Americans are better off financially than they were prior to the beginning of the pandemic in March 2020. ... Reminds one of the 6’ fella who drowned in a river that was on average 5 feet deep.

Or the fellow who had one leg in a bucket of ice and the other in a bucket of boiling water. On average he was doing fine.

However, the figures are median, not mean, so most people are better off in terms of wealth than pre-pandemic. Further, inflation-adjusted income in every quintile increased by 5%-6% except in the top quintile, where the lower half saw "just" a 9% increase, while the top half (top decile overall) saw income rise 15%.

All from the Fed survey I cited above.

davfor

It's my sense the article's basic conclusion is accurate in the sense that msf described. But, that doesn't mean most people feel that they are better off. I suspect they continue to focus on their frustration that much of the stuff they buy regularly costs a lot more than it did prior to the pandemic. Perhaps the slowdown in the rate of price increases will need to continue for another year or two for most people to stop comparing what stuff cost them before the pandemic to what it currently costs them.

davidrmoran

feelings vs data

note the Wage Tracker graph

https://www.nytimes.com/2023/11/28/opinion/economy-voter-sentiment-inflation.html

Junkster

Observant1 said:

Good article.

I can't wait until their outlook improves and they start shoveling the record $5.73 trillion
in MM funds into the stock market...

+1 And don’t forget the bond market. The current month long move in long duration bonds of all stripes and colors has been a lock out rally and one of the best in many a moon. Many muni funds have had but one down day the entire month and up 6% to 7%+. Tomorrow’s inflation report could be pivotal if this move is to continue. It has been said many times that the best money, be it stocks or bonds, is made long before the outlook improves and the coast is clear. Markets are anticipatory as well as counterintuitive.

Edit: After today’s action make that 7% to 8%+ for munis. Other bond categories have seen double digit gains the past month.

FD1000

Big items went up.
House are about 30% more expensive (https://www.atlantafed.org/center-for-housing-and-policy/data-and-tools/home-ownership-affordability-monitor)
Vehicles are 30+% more expensive since 2020. Many categories went up 20+%(https://www.bloomberg.com/graphics/2023-inflation-economy-cost-of-living/#xj4y7vzkg).
So, if you have a house, you are OK, if you want to buy it the first time, it's more than 30% higher.
BTW, how much more your insurance increase in 2023?
Inflation has been the highest since the 80s at about 20% since 01/2020. Did employees get an equal increase to keep up with it? No.

msf

Inflation has been the highest since the 80s at about 20% since 01/2020. Did employees get an equal increase to keep up with it? No

"Median usual weekly earnings of full-time wage and salary workers ... quarterly averages, seasonally adjusted"
https://www.bls.gov/news.release/wkyeng.t01.htm

4th Quarter, 2019 - $935
3rd Quarter, 2023 - $1,118
Pct change (my calculation): 19.6%, or about 20%.

Did employees get an equal increase to keep up with inflation? Yes.

In case you consider my arithmetic suspect, the same BLS table gives figures in constant (inflation adjusted) dollars:
4th Quarter, 2019 - $362
3rd Quarter, 2023 - $365

Did employees get higher wages in 2023, after inflation, than they did at the end of 2019? Yes, though the gain was barely discernable (about 1%) by these figures.

People pay attention to their losses (high inflation items) more than their gains (items with prices rising less than their wages). They look at how much they lost to inflation since 1/1/20 (prices about 20% higher), rather than how much their portfolio made (VFIAX up 40% per M* chart). This is why metrics like Sortino ratio were invented - to measure what people focus on (losses).

Do I feel bad every time I walk into a grocery store and see the prices? Yes, at least usually. However, iceberg lettuce is down from $6+ to $1.49. Overall, after looking at what I can afford, after reviewing my portfolio, do I feel good? Yup.

I was able to afford a river cruise to Transylvania offered on Black Friday. Looking forward to seeing my ancestors' old stomping grounds. Might even run accross Vlad there

Devo

+1

Baseball_Fan

...according to CBS, the The typical American household must spend an additional $11,434 annually just to maintain the same standard of living they enjoyed in January of 2021, right before inflation soared to 40-year highs.

msf

Reported by CBS, not according to CBS. It wasn't a CBS analysis.

CBS was reporting a Republican analysis and reporting that the administration had issues with the analysis. IOW, CBS reported two different political analyses.

The analysis, from Republican members of the U.S. Senate Joint Economic Committee, taps government data such as the Consumer Price Index and Consumer Expenditure Survey to examine the impact of inflation state by state.
...
The Biden administration called the analysis "flawed." Citing federal labor data, a White House spokesman noted that per capita disposable income has risen 16% since December 2020, just prior to President Joe Biden's inauguration.

"14 million more Americans have jobs today than when President Biden took office and household disposable income is up by almost $21,000 since December 2020," the spokesman said in a statement to CBS MoneyWatch.

https://www.cbsnews.com/news/inflation-households-need-extra-11400-these-states-its-even-higher

Maybe my arithmetic is flawed, but it looks like a gain of $21,000 (nominal) less $11,434 in extra costs leaves almost $10K (nominal) in extra money to raise households' standard of living. Or maybe that $21K is not an annual figure but a cumulative figure. Who knows?

Now I don't believe any of these politically spun figures. If you've got BLS figures, or Fed figures, or some other comparable figures, as opposed to Republican or Democratic figures that help, please do post them here.

But also, please be careful when you do so. I saw above that you said that layoffs were starting to rise. Layoffs have been declining, though the unemployment rate has started to rise. It's easy to misuse terms whether inadvertently or deliberately and draw mistaken conclusions.

Layoffs and Discharges: Total Nonfarm (Oct 2022 - Sept 2023)


Unemployment Rate (Oct 2022 - Sept 2023)

Old_Joe

"CBS was reporting a Republican analysis" said...

Don't you just love the fast and loose ways that some people repeat statements of questionable accuracy and veracity so as to make them sound like actual facts?

Baseball_Fan

Well thank goodness Krugman doesn't do that and isn't a political hack ..

davidrmoran

I found this helpful

davidrmoran

dreamy dreams

https://nymag.com/intelligencer/2023/11/you-dont-want-2020-prices-back.html

Devo

This stuff does open the debate between those employed vs retired. The employee wages do rise with inflation (maybe not quite as much after tax adjustment), but still in the direction. Whereas retirees are on their own and have to manage the portfolio to get to that positive outcome. Given the total returns in 60/40 over the last 2 years combined one can see where the angst divide lives.

FD1000

msf
In case you consider my arithmetic suspect, the same BLS table gives figures in constant (inflation adjusted) dollars:
4th Quarter, 2019 - $362
3rd Quarter, 2023 - $365
===============
FD: good catch, I would start from Q1/2020 to Q3/2023 beginning at 367, ending at 365
Just for reference: what happened in the 4 years prior, from Q1/2016 to Q4/2019: Start at 346, end at 362...just "a bit" better.
BTW, I have discussed the above with many younger people and they have told me that they are way behind in what they can purchase now vs early 2020. Housing+vehicles are the leading factors and both are a high % of their spending.

davidrmoran

Baseball_Fan said:

Well thank goodness Krugman doesn't do that and isn't a political hack ..

indeed

that wage tracker graph (atlanta fed) was from his article

Tarwheel

@Devo - Retirees who are drawing Social Security get annual increases in benefits equivalent to to inflation rate (CPI). That’s much better than my state pension which has no inflation adjustments

Devo

good point on the SS infl benefits. I knew it but slipped my mind.

davidrmoran

Tarwheel said:

@Devo - Retirees who are drawing Social Security get annual increases in benefits equivalent to to inflation rate (CPI). That’s much better than my state pension which has no inflation adjustments

what state has constant pensions? from retirement day 1?

Tarwheel

davidrmoran said:

Tarwheel said:

@Devo

what state has constant pensions? from retirement day 1?

@davidrmoran

North Carolina has no automatic inflation adjustments in its pension program for retired teachers and state employees. The state legislature has the authority to increase pension payments but has not done so since my wife and I retired 6-7 years ago. They have granted a few one-time “bonuses” that increase pensions slightly on a year to year basis, but those bonuses are not permanent increases. The real value of our pensions has dropped about 20% since we retired. I do not anticipate any permanent increases as long as Republicans control our legislature because they view state employees as scum.

Investor

The data and employment trends support the argument. However, people will judge economy based on what they spend most visibly (prices of food and gas). So, there is the disconnect.

However, for a middle-class family the percentage of these items is relatively small (food about 10% and gas about 6%). Plus, while prices have these items have increased some due to supply chain issues after pandemic and some simply because economy is good, people have jobs and are actually travelling and in effect creating more demand. Without demand the prices cannot easily go up. Fed is basically trying to curb the demand by increasing interest rates.

Also, if you have travelled around the world, you would see US food prices (especially meat) is relatively on the lower end of the scale. In Europe you pay a lot more for your groceries and gas if we compare US with most other developed countries. Inflation while considered high vs 40 years, it is still a very low number again compared to many other countries (well maybe Japan which often goes through deflationary cycles) I will take a bit of inflation with plenty of jobs available vs, no or negative inflation with jobs getting lost. I have lived in a hyperinflation country and the inflation worries here is just more noise than substantial.

Perceptions are also colored by political propaganda of both parties. So, where do I stand? I take the positive view with a nuance. It is neighter as bad as it is perceived, nor it is as good as it could be.