Hope For A Better Economy In 2021?
Dear Rich Lifer,
The U.S. economy experienced a multitude of shocks this year, from coronavirus to racial injustice to a divisive election.
As 2020 winds down, we take a look back at the economy this year, and look forward to what 2021 may hold.
The pandemic seemed to take over the economy in 2020, forcing business to close, leaving thousands jobless, and throwing the markets into disarray.
But not too long ago – at the beginning of 2020 – the economy was booming…
The Grass Was Greener
Pre pandemic, unemployment was at record lows, employment was rising, and household wealth and spending was increasing.
We even saw the wealth gap beginning to shrink. According to the Federal Reserve’s Survey of Consumer Finances, people in the lowest income quintile saw their net worth rise 37% from 2016 to 2019.
A tighter labor market meant higher wages, greater schedule flexibility and increased worker training, In fact, incomes among those under the age of 35 rose by 13%!
Even the most stubborn of trends, like Black homeownership, which has been falling since 2004, was finally back on the rise.
Then disaster struck in the form of Covid-19 and everything changed.
The First Shock: COVID-19
About 40% of those who earned less than $40,000 lost their jobs in March. New weekly jobless claims, which had hovered above the 200,000 mark for months, climbed above six million.
These losses hit certain sectors of America much harder than others. Low-income Americans, for example, felt the hardest hit when it came to the general impact of government-mandated lockdowns and reduced spending. Black and Hispanic workers also suffered disproportionately, as they were more highly represented in industries that were hit the hardest, such as restaurants.
Overall, this was a recessional felt mostly by the service sector, big cities, and women. In fact, from February to April, the employment level fell 15% for women ages 25 to 54, according to the Bureau of Labor Statistics. Among the four million people who have been pushed out of the labor force since February, 55% are women.
And while some faltered, other industries thrived. Grocery stores received a sudden boost, e-commerce became a lifeline, online learning blossomed, at-home workouts became the rage, and video game companies boomed.
The pandemic presented unprecedented challenges that spurred innovation. Access to telemedicine expanded due to rule changes in Medicare and Medicaid which allowed patients and doctors to be reimbursed for remote visits. Manufacturers repurposed assembly lines to make ventilators and masks.
Even congress came together, in a rare display, putting partisan politics aside to approve the largest stimulus package ever passed. Millions of American received individual $1,200 checks and the Paycheck Protection Program kept many small businesses afloat. Expanded unemployment benefits helped the jobless survive and encouraged continued spending.
And then the economy received a second shock.
On May 25 in Minneapolis, a Black man named George Floyd was murdered by a police officer, who kneeled on his neck for eight minutes and 46 seconds until he died. As footage of the murder circulated, protests began across the country.
It’s worth noting that social inequality is not the only hurt felt by black Americans. There also exists a significant economic disparity between white and black Americans.
Black Americans still earn barely 60 cents for every $1 in white income. They have 10 cents in wealth for every $1 whites own, and they remain more than twice as likely to live in poverty. Combine social inequality with economic inequality and the fact that Black people are 1.4 times more likely to become infected with Covid-19 than white people, and you have tension ready to boil over.
In response to protests, stores boarded up their fronts and some cities imposed mandatory curfews.
The contentious election served as the third shock to the economy, though this came with little surprise. The ultimate economic effect of the election still hinges on the runoff Senate races in Georgia.
Right now, with a Democratic President Elect, Joe Biden, but a Republican controlled Senate, passage of progressive legislation that may significantly alter the economy will prove to be difficult.
With only days left in the year, we now look forward to 2021…
We hope the economy is prepared and ready for recovery. Of course, recovery in certain sectors will rely heavily on the efficacy of a coronavirus vaccine.
Industries like commercial real estate companies and physical retailers will likely continue to face reinvention to survive in this “new normal.”
However, there is also good news to look to that points to recovery. There were almost 1.6 million new business applications in the third quarter of 2020, up from fewer than 860,000 a year earlier. New businesses mean new jobs and new jobs means less unemployment.
The Federal Reserve has worked much quicker than in the 2008-09 recession to prop up the financial sector and according to the Fed, Americans have accumulated $2 trillion in new savings deposits since February.
An online economy, which kept American running during the pandemic, will only continue to expand, giving Americans a place to spend their savings.
And just like the Fed and financial systems were more prepared for this recession, states and the federal government will also learn from this year and improve. There will likely be an overhaul of outdated unemployment insurance websites and larger stockpiling of essential medical equipment.
There has been valuable practice gained in sending checks out to households, expanding and extending unemployment insurance, using temporary flexibility in SNAP benefits (food stamps) and making forgivable loans to businesses.
The new “work from home culture” has allowed employees to save time and money on commuting. They will be able to live where they please without being tied to expensive cities. Workers with disabilities or conditions that make it hard to leave the home will find new opportunities in the work-from-anywhere economy.
Perhaps the abandonment of traditional office spaces will lead to conversion into more useful spaces. Office buildings could be converted into housing, parking garages into outdoor parks and parking lanes into bicycle paths.
There is no doubt that 2020 was an incredibly difficult year, but we certainly hope that 2021 can usher in a new economic boom, include an increase in inclusivity and reveal a more resilient American people.
To a Richer Life,
The Rich Life Roadmap Team