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Tom Barkin

Different Realities, Different Recoveries

Tom Barkin

May 21, 2020

Tom Barkin

President, Federal Reserve Bank of Richmond

My family is fortunate to be healthy, together, and working from home. My grown kids, who left us several years ago, have come back, and it is great fun to be together again. We are surprisingly productive. We are spending less on travel and dining out, so are saving more.

But many people are in very different circumstances. Take, for example, those who work in businesses deemed essential. They continue to go to their workplaces. They are proud to have been deemed critical for the safety and security of our country and some are receiving hazard pay. But they know — no matter the precautions they are taking — that working poses a health risk to them and to their families.

And of course, then there are the 38 million Americans who have filed for unemployment and the almost 5 million more who have left the workforce over the past two months. Despite enhanced benefits for those who are unemployed, they’re worried about their present and their future.

It’s worth noting a socioeconomic split underlies these different realities. Based on credit card data, wealthier households, whose members are largely still working and doing so from home, are spending less; in contrast, low-income households, living much closer to the edge, have largely maintained their spending. According to a recent survey by the Federal Reserve Board, 39 percent of those making less than $40,000 per year have faced a job loss in the past two months, compared to 13 percent making more than $100,000 per year. The unemployment rate for those with less than a high school education is more than 20 percent, more than double that of those who have a bachelor’s degree or higher (8 percent). And of course, the former group has less savings to buffer them in their time of distress. This crisis has further solidified the ability to work from home as a divider: 63 percent of those with a bachelor’s degree are in jobs where they’re able to work from home during the crisis; compared to only 23 percent of those with a high school degree or less. The differential availability of broadband access exacerbates this gap.

Increasingly, as I talk to consumers and retailers, I hear that these differences may matter when we talk about the pace of recovery. We may see the economy come back at different speeds for different parts of the economy.

Higher-income households are cautious and can afford to be. Many of their jobs can continue to be done remotely. Many have taken the message that their absence from the workplace has protected their health; they may be reluctant to reengage too quickly. They can get much of what they need done through online channels, until such time as they believe they can shop without undue health risk. In a recent Gallup poll, 73 percent of those with a college degree said testing would have to be widespread before they would return to normal activities, versus an estimated 51 percent without that degree.

But lower-income households may well be coming back to stores more quickly because they can’t afford not to  — many live paycheck to paycheck. Fiscal payments put money in their pockets, which history suggests will be spent rapidly on needs they have left unfulfilled. Access to online commerce is more limited, especially for those without access to credit or broadband. And if you work shoulder-to-shoulder (even 6 feet apart) in a production environment, then going to a store perhaps isn’t seen as such a large incremental risk. Lower-price retailers tell me sales are returning toward normal at a faster pace than I hear from higher-priced retailers. I hear similar strength in smaller, economically distressed towns that haven’t had significant outbreaks.

These different realities have implications for how widely shared our recovery will be, and because they also imply differing levels of health risk, implications for the course of the virus itself. I am watching both closely.

 
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