A short note on the Covid-19 economy: If you think things are bad now, you ain’t seen nothing yet. While there was a slight pickup in May, which continued into June to an extent, it still is well below previous economic levels. And when the $600 federal unemployment addition ends…
April collapse; May recovery
April saw the economy collapse, with the unemployment rate shooting up from the official 4.4% rate of March to 14.7%. This combined with the upcoming elections to force the hand of even the Republicans, who passed the relief bill, sending $1,200 check to almost every citizen and adding $600/week to unemployment benefits. The result was a slight decrease in unemployment (to 13.3%) in May.
In large part, this was related to an increase in retail sales. The Wall St. Journal reported that “sales at clothing stores rising 188% from the prior month and furniture sales jumping 89.7%. Receipts at bars and restaurants jumped nearly 30% in May from April, but were down nearly 40% year-over-year.”
June saw a continued “recovery”, with retail sales increasing 7.6% over May. However, as the NY Times reported, “Rather than people socking away their bolstered unemployment benefits in savings, the retail sales numbers show that the money was being spent.” In other words, there was a backlog of purchases that consumers (workers) had wanted to buy and they did so in May and June, leaving little left for the future.
And what will that future bring?
$600/week to end; $1.8 bn/week reduction in income
There are presently 30 million people collecting unemployment benefits. That means, 30 million depending on the extra $600/week. It seems very likely that this will expire in July. That means a reduction of $1.8 billion per week for US workers!
Among other things, this is likely to lead to a massive wave of evictions and foreclosures. CNBC reports: “almost one-third of U.S. households, 32%, have not made their full housing payments for July yet, according to a survey by Apartment List, an online rental platform. About 19% of Americans made no housing payment at all during the first week of the month, and 13% paid only a portion of their rent or mortgage. That’s the fourth month in a row that a “historically high” number of households were unable to pay their housing bill on time and in full, up from 30% in June and 31% in May.”
An interesting sidelight is that income inequality actually seems to have decreased, at least temporarily. While low-income spending decreased by 30% before the government stimulus checks went out and after it decreased by only 5%, that same spending in high income areas decreased by 36%. Actually, this is typical of any class based society, including capitalism. According to Walter Scheidel, author of the book The Great Leveler, the only events that decrease income and wealth inequality are crises like economic collapses, wars and revolutions. This pandemic could count as such a crisis.
If millions are evicted from their homes, and if small businesses are shuttered, leading commercial properties vacant, then it seems inevitable that this will necessitate a decline in property values. Not only that, but it seems the stock market as well as the bond market will fall sharply. Oops, there goes a lot of that wealth of the billionaires!
We should not be overly worried about the capitalists, however. Because while wealth inequality may decline, the suffering inequality will increase. For the billionaires, they may have to postpone their purchase of the next megayacht. The NY Times describes that industry: “maybe you have to decide whether to build one 330-foot vessel (100 meters) or join a trend of the last few years by opting for a “smaller” 200-foot yacht with a 165-foot support vessel to carry a submarine, helicopter, speedboats and other toys. Aviva, a 320-foot yacht launched in 2017, was the first in the world to include a full-size indoor paddle tennis court.” (There are presently about 3500 such yachts in the world.)
Compare that with the worker who put it very simply: “If that (the additional $600/week unemployment pay) ends, I will lose my home.”