Before the COVID-19 pandemic, the standard narrative goes, the U.S. economy was running full steam ahead, with record employment levels, wages on the rise and a stock market so dominant that not one but four different companies managed to cross the $1 trillion market cap in the last few months of 2019. To borrow a line from 1926 chart-topper “Blue Skies,” “Never saw the sun shining so bright, never saw things looking so right.”
Then the coronavirus went off like a nuclear bomb in the heart of the global economy, leveling everyone and everything in its path.
Not an untrue description of the situation, but one that tends to miss the fact that by the numbers there was an awful lot of income instability among American consumers bubbling just below the surface before the COVID-19 wrecking ball hit the economy about three weeks ago. The pandemic didn’t create that, it just created the conditions that allowed it to boil over into a national crisis overnight.
Because long before anyone had ever heard the term “novel coronavirus,” 23 million Americans already reported that they were living from paycheck to paycheck. According to the Federal Reserve, roughly 40 percent of consumers would struggle to cover an unexpected expense of $400. The same study found that 30 percent of American adults had income levels that varied month to month, and that 10 percent experienced economic hardship as a result. The study also found that a quarter of American adults had skipped necessary medical treatment due to cost, and that 20 percent reported struggling to pay their monthly bills.
The same patterns were reflected in PYMNTS study of household finances in 2018 which found that on the surface, consumer finances looked very strong. Open up the hood and take a deeper look, there is a lot more there to be concerned about that is easily apparent. A little over half of all consumers, PYMNTS found, were “no worries” financially speaking — fully employed, educated, bills paid on time, money going into a savings account for a rainy day.
The rest of the marketplace, however, is far less stable by a number of metrics — amount of money going in, how much debt is being carried, inability to keep current with monthly bills. There were all kinds of invisible financial pain points amplifying in the economy among many segments in 2018, Karen Webster noted in a commentary. They may not be worrying anyone yet, she noted then, because the economy was humming along in 2018, despite the fact that “most people are still living paycheck to paycheck and facing financial stress.”
“Looking under the hood of [consumers] household finances, they look like they should be worried, and if they aren’t now, they easily could become very worried with the next downswing. Which, as we all know, is inevitable,” she wrote.
The inevitable has now happened — in a more spectacular way than anyone could have forecast — and the worries have shown up in force with it.
New York City Line cook Leeda Bijani described her last week at work as the hardest of her life.
“That week, I felt like I lived a year in about seven days. I love being out in my city and working really hard. My livelihood, my happiness, my sanity is cooking and being in a kitchen. And it was gone overnight,” she told Slate, noting in mid-March that she had no idea how she was going to pay her rent when it came due April 1.
Indiana student waitress Tricia Petit said most of her co-workers, who’ve been furloughed for the duration of the epidemic, are not only worried about the cataclysmic loss of income — they are also now worried they are going to get sick as their health insurance disappeared along with their job.
“If I didn't have health care [through] my parents, I don't know what I would do if I got sick,” she told WBUR . “I don't know how I would pay for that. I know most service industry workers, including myself, work on very, very low wages [because] we’re just expected to make our living on tips. So if nobody came out, I really wouldn’t be making any money even if I was still able to be at work.”
Living On The Edge
Petit, Bijani and now 10 million other American workers who find themselves unemployed with no paycheck and possibly no health insurance during a global health crisis had been walking a tightrope financially speaking before this crisis ever began. And those consumers, Brookings Institution Senior Fellow Jay Shambaugh told WBUR, are now falling off in droves, or struggling to hold on at all.
“I think when we look at any situation where there is a potential downturn in the economy, one thing it really reveals is the extent of vulnerability in the population, that there are a lot of people really kind of living on the edge of just getting by,” Shambaugh said.
And now those consumers have gone from living on the edge, according to PYMNTS’ most recent COVID-19 surveys, to making massive changes in their lifestyle to make sure they don’t drop clean off of it. Our survey estimates that the employment rate in the United States has plummeted by 15 percent in a little under a month, and among those still employed, 48 percent report being concerned they will lose their job, with 28 percent reporting being “extremely concerned.”
And those concerns are clearly warranted, since the majority of them also report being economically vulnerable — with nearly two-thirds of consumers surveyed (59.3 percent) saying they lived paycheck to paycheck as of March 27. Worse, 22.9 percent say they not only live paycheck to paycheck, but also struggle to pay their monthly bills.
But, PYMNTS data also indicates, consumers have also been rewriting their spending habits to better brace for the coming economic storm for the last few weeks. When we previously polled consumers in mid-March, 65.7 percent reported living paycheck to paycheck. That means the number of consumers living paycheck to paycheck decreased 9.7 percent in just 10 days. Changes like that are usually measured in years, not months, let alone days.
As for how much difference that is making, according our latest survey, 55 percent of consumers would be able to live off their current cash reserves — checking accounts, cash in wallets, etc. — for 60 days or less before they need to draw funds from their savings to pay their bills. Unfortunately, that’s only 44.8 percent of how long the typical consumer thinks this crisis will last (134 days on average).
Consumers don’t have robust sums of cash saved, if they have any saved at all. Our March 27 survey shows that 45.4 percent of consumers have $2,500 or less in savings, with roughly a sixth (15.6 percent) having no savings at all. Low-income consumers — those making less than $50,000 a year — are likely to be hardest hit since their savings situation is far and away most dire. Some 69.3 percent of consumers in this income bracket have $2,500 or less in savings and more than a quarter (28.9 percent) have no savings at all.
And, given how many of these workers lost their health insurance along with their jobs, it’s perhaps not surprising that unemployment isn’t even the leading concern among these workers, despite the fact that it is such an extremely pressing concern for so many. But not as pressing as health is these days — their own or other people’s. According to our March 27 survey data, 4.1 percent of those we polled reported their biggest concern was losing their job, as opposed to the 36.1 percent of consumers who cite infecting other people as their biggest concern about the coronavirus pandemic. Another 27.9 percent cite fear of dying from COVID-19.
All that anxiety, the numbers indicated, has created a new epidemic of belt-tightening nationwide, as workers anxious about preserving both their health and economic futures are doing a lot less than they once were, particularly in a commercial sense. Our research shows that 76.5 percent of consumers are grocery shopping less often now than they did before the pandemic vs. 64.8 percent who said that on March 17 and 20.9 percent on March 6. And the world has gone from “digital first” as a buzzword to “digital only” as a way of life as consumers more or less have shifted their entire commercial lives online and proceeded to do a lot less shopping all around.
And they aren’t just buying less. They’re buying very differently than they have until recently. Of the 30 percent of consumers who told us they’ve now largely shifted their spend online over the last 22 days, three times more consumers are buying cleaning supplies (59 percent) than clothes (19 percent). And four times more consumers are buying medical supplies (43 percent) than home furnishings (11 percent).
As for what comes next, that’s the $2 trillion questions. Businesses, government and individuals are all simultaneously scrambling to make sure that those who were already living paycheck to paycheck can keep on surviving until the paychecks start going out again — without any certainty as to when that might be.
And by the numbers PYMNTS is seeing now — and has been watching for the last two years — it might be quite a while before blue skies is all anyone sees for quite some time.