Most Americans are better off financially now than before the pandemic
Jobs, paychecks, spending, wealth, and financial security have made big gains, which offset the burden of higher inflation. That's true for most families. The good news stretches far beyond the rich.
Today’s post offers various facts about people’s finances sourced from representative groups of people and businesses across the country. My focus is on “better off,” not “well off,” and “most” (50% or more of people), not “all.” It’s also not about inequality or comparisons to others. Also, I’m not questioning people’s pessimism in other surveys; I’m simply unpacking it.1 Finally, I am an independent economist and not here to spin anyone.
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. It’s in the aggregate and individual-level data:
Millions more good jobs.
Bigger paychecks, even after inflation.
Consumer spending back on strong pre-Covid trend.
Historic increases in wealth, including at the bottom.
Lowest debt burdens on record.
It’s become a controversial view, and frankly, if you had asked me in April 2020—when unemployment hit almost 15%—that three and half years later, we would be in a better place than February 2020, I would have said no. But much has happened since then, and information that we now have from a wide range of families suggests that most got ahead; among them, some who had been falling behind for decades.
Only 14 per cent of American voters believe they are better off financially now than when Joe Biden took office, in the latest sign that the president’s economic record could undermine his re-election prospects. A poll found that almost 70 per cent of voters thought Biden’s economic policies had either hurt the US economy or had no impact, including 33 per cent who said they believed the president’s policies had “hurt the economy a lot”. Only 26 per cent said his policies had helped.
Priming on who’s President almost certainly polluted the answers with partisan views. But, Democrats, who would expect to be more optimistic given a Democrat is in the White House, were gloomy too about their finances.
So, most Americans are telling us they are not better off, but the data on people’s finances are saying they are. Unlike this survey, I will use pre-pandemic, not post-Biden, as my reference point. It does not change the takeaway from my analysis, and there are numerous reasons to do so, among them, to stay out of politics. Plus, the fact that most Americans are financially better off now owes to policies during both the Trump and Biden administrations.
Millions more good jobs.
It’s hard to know where to begin. There are so many examples of the gains in the labor market. If you want to know why people are holding up with higher prices and interest rates, better jobs and bigger paychecks are the key.
Before the pandemic, the unemployment rate had been below 4% for 13 consecutive months. As of October 2023, it has been there for 21 months. That is the longest stretch since the late-1960s. That is very good.
That I have had to defend the importance of a rock-bottom unemployment rate is mind-boggling. As I explained in an earlier post, it’s good for all workers:
A strong labor market gives workers bargaining power. Often that good news for workers is framed as bad news for the economy. The high rate of workers quitting and moving to better jobs is described as a sign of “overheating,” since companies must increase pay to hire. Even if wage gains aren’t keeping up with inflation, higher base pay matters. More money is good for workers and their families.
One concern recently is the drifting up of unemployment insurance claims, both new and continuing, but as Constance Hunter shows, the decline during 2021 was massive, and since then, claims have been low. The recovery from the Covid recession is amazing.
Americans had lived through multiple jobless recoveries before this one. This recovery was a job-full recovery. Jobs were plentiful before the pandemic, and Covid put that financial security at risk. To come back better than before is remarkable.
Bigger paychecks, even after inflation.
Most Americans depend on their paychecks to pay the bills. When there’s inflation, those paychecks do not go as far. Of course, if the paycheck increases, people can keep up. They may be angry, but most can pay the bills.
Wages have caught up for most, and the biggest gains have been at the bottom.3 That positive turn of events hinges on this year, in which inflation decreased and median wages grew steadily. Any analysis that excludes 2023 is misleading.
But paychecks are not just about wages; they’re also about hours. Full-time work, usually better, rebounded more quickly than part-time work. That’s precisely the opposite of what happened after the Great Recession. Median inflation-adjusted weekly earnings for wage and salary workers in the third quarter are a touch above their level at the end of 2019. (Note, the spikes in earnings in the recession are a composition effect in which lower-earning workers are laid off most.) After the Great Recession, it was not until 2014 that the median real weekly earnings returned to their pre-recession level.
There is no sugarcoating it: the pandemic was highly disruptive. It turned lives and livelihoods upside down. More than a million Americans died from Covid, and millions more have long Covid. Putting the pieces back together has been painful, but there is also no denying the gains for most workers.
Consumer spending is back on track.
Being able to provide for one’s family is a central concern of most Americans. A sign of progress on that front is an increase in consumer spending after adjusting for inflation. Higher price tags, especially on necessities, are a burden for many. But at the end of the day, it’s the amount of actual goods and services we can buy that matter.
The news on consumer spending in this recovery is excellent. The gains have far outpaced inflation. Real consumer spending is nearly back on its pre-Covid trend. It took several years after the Great Recession—the biggest indictment of both parties’ fiscal response then.
Aggregate numbers can mask the experiences across different groups of households. However, the distribution of consumption is more equal than that of income or wealth. (Note: The exact estimates in the research vary.) Plus, the gains in consumer spending since the pandemic began are sizeable, making it unlikely that only the wealthy benefited. Please also remember that a family of four (except those in the top 20% by income) received $11,400 in stimulus checks during the first year of the pandemic, which is almost 20% of median family income. As already noted, lower-wage workers saw the largest wage gains.
The composition of spending was also different this time, which has implications for financial well-being. Durable goods are longer lasting. We drive a car off the lot and for years after that. Whereas when we go to a restaurant, which services spending, we only eat our meal once. An extremely unusual, pandemic-induced shift in our spending was from services to goods. Services remain the largest type of spending, but durables goods spending shot up. The downside was the upward pressure on inflation; the upside is that those items continue to support our economic well-being.
Some will say that the gains in spending are overwhelmed by peoples’ fears that the spending will end soon. Economic insecurity is the cause of concern. Given all the improvements in family finances, it’s hard to see how there is more economic insecurity now than before the pandemic.
But recession fears have been—and continue to be—shoved down our throats for almost two years. I have been pushing back with facts and common sense the entire time, and I have been right. Good.
But again, the purpose of this post is to lay out the facts rather than parse how people feel about their finances or where the economy is headed. It is disconcerting.
Historic gains in wealth, including at the bottom.
The labor market recovery has been excellent, and the gains in wealth are stunning. The median family wealth, adjusted for inflation, jumped 37% from 2019 to 2022. (The median means that at least 50% or most families had a 37% gain.) That is the largest increase since the survey began in 1989, over double the next-largest increase.
Most impressively, the historic gains in real median family wealth are shared across all demographic and economic groups, including income.
Americans who have never had a financial cushion have one now. That is no accident. It takes a living wage to save, and there are higher wages now. And the massive amount of fiscal relief, including stimulus checks and larger jobless benefits, protected people from the disruptions of the pandemic, including higher inflation.
There is a cottage industry in estimating how much “excess savings” Americans have. While I don’t like the term “excess,” it is clear that most people have more savings than we would have expected before the pandemic. Yes, inflation is causing some to draw their financial cushion down, yet most Americans had a cushion to draw on, which was not the case for millions before the pandemic.
Lowest debt burdens on record.
Debt hitting record highs is the most common pushback I receive to my argument, other than inflation. And the dollars of credit are highest now.
I can’t blame the average person for buying into the debt doomsaying. That’s the message everywhere you turn. Outside of stimulus checks, I could not find coverage of the quarter-after-quarter disposable income that hit new highs. Debt numbers blasted out without context of income and are misleading. Taking debt relative to income or wealth shows good news, not bad.
The rising delinquencies are something to watch. I talked about that on the NPR Weekend Edition. However, delinquency rates fell in the Covid recession, and while balances in serious delinquency are rising, they are below pre-pandemic levels.
Transitions into 30-day and 90-day delinquencies are, in some categories, at or a touch above pre-pandemic levels. However, it’s worth remembering that interest rates due to the Fed’s rate hikes are considerably higher now. Now, aggregates could be masking the credit burdens for the typical (median) household. The news is even better if we look at households’ debt:
All three ratios [leverage ratios, debt-to-income ratios, and payment-to-income ratios], both in aggregate and as a median for debtors, decreased between 2019 and 2022, implying families faced lower debt burdens after relatively broad-based increases across measures from 2016 to 2019. In 2022, the median leverage ratio for debtors was 29.2 percent, its lowest level since 2001; the median debt-to-income ratio for debtors was 95.1 percent, holding relatively steady since 2016 but well below its 2004–13 levels; and the median payment-to-income ratio for debtors was 13.4 percent, its lowest level ever recorded in the SCF.
That’s the median family—so at least 50% of families—are better or about the same regarding their debt burdens. Some of these are records, so the good news almost certainly extends to some below-median households. The comparison from 2019 to 2022 here spans the worst recession since the Great Depression, higher interest rates, and elevated inflation.
Some gloom is understandable today; we lived through the unimaginable with the pandemic. We must also live in the real world, where most Americans are financially better off regarding their jobs, wages, spending, wealth, and debt. And all of that after we account for inflation. We are in a better place.
It’s a huge accomplishment—we should celebrate and build on it.
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I am an expert on surveys that ask people directly, “Are you better off?” and other questions on their economic sentiment and expectations. I have used them in my policy work and research. I understand that it’s complicated how people reply, but something is off-kilter in the responses now, more than previously. That’s worrisome and a puzzle.
Note that the reference point for this survey is when Biden became President in 2021. The fact that the survey question mentioned the President amps up the politics in the responses. However, one would expect Democrats to be overly optimistic due to political affiliations. But they are extremely downbeat, too.
My chart uses the national CPI-U to deflate the median wages for each wage quartile. Research from the Bureau of Labor Statistics on CPI by household income quintiles finds that inflation is higher for lower-income groups, but the gap is modest. Specifically, prices rose from December 2019 to June 2023 by 19.5% for the lowest income quintile versus 18.0% for the highest quintile. Note household income groups (in BLS) do not map to wage worker groups (in Wage Tracker). Also, the BLS analysis only adjusts the basket of goods and services that different income groups purchase. It does not capture differences in prices paid by household income. There are caveats with inflation most appropriate to deflate, but nominal wage gains at the bottom are big. See more in my earlier post. See also this piece from Brookings, which shows various measures of real wages.