FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
December 29, 2020

US Poverty Rate Exploding - Parting Thoughts On 2020

IN THIS ISSUE:

1. Overview – Poverty Rate Soaring, Thoughts On 2020

2. Eight Million More Americans In Poverty Last 5 Months

3. Poverty Rise Hitting Minorities & Under-Educated Most

4. Conclusions & The Very Questionable Outlook For 2021

Overview – Poverty Rate Soaring, Thoughts On 2020

With the COVID-19 pandemic spiking again, and with most federal stimulus programs having expired over the last several months, the US poverty rate is soaring at a rate never seen before. Nearly 8 million Americans have fallen into poverty over the last 5 months alone, since the government stimulus programs have largely ended.

While the official poverty rate is still relatively low by historical standards, the increase in poverty this year has been the largest jump since the government began tracking it six decades ago. That’s what we’ll start with today.

Following that discussion, I will offer some thoughts on 2020, one of the worst years in recent history in terms of the pandemic, and finish with some suggestions on what 2021 might be like. Let’s jump right in.

Eight Million More Americans In Poverty Last 5 Months

The US poverty rate has surged over the past five months, with 7.8 million more Americans falling into poverty, the latest indication of how deeply many are struggling after most government stimulus programs ended.

The poverty rate jumped to 11.7% in November, up 2.4 percentage points since June, according to the latest data released on December 16 by researchers at the University of Chicago and the University of Notre Dame.

While overall poverty levels are still relatively low by historical standards, the increase in poverty this year has been swift. It is the biggest jump in a single year since the government began tracking poverty 60 years ago.

It is nearly double the next-largest rise, which occurred in 1979-1980 during the oil crisis, according to the researchers -- James Sullivan, a professor at Notre Dame, and Bruce Meyer, a professor at the University of Chicago’s Harris School of Public Policy.

Sullivan and Meyer created a “Covid-19 Income and Poverty Dashboard” to track how many Americans are falling below the poverty line during this deep recession. The federal poverty line is $26,200 for a family of four.

The economists say the sharp rise in poverty is occurring for two reasons: Millions of people cannot find jobs, and government aid for the unemployed has declined sharply since late summer.

The average unemployment payment was more than $900 a week from late March through the end of July, but it fell to about $300 a week in August, making it harder for the unemployed to pay their bills. “We’ve seen a continual rise in poverty every month since June,” said Sullivan.

While President Trump signed the $900 billion COVID relief package on Sunday night, Congress is debating whether to pass additional stimulus. In the House, a majority wants to increase stimulus payments to a whopping $2,000 per person, whereas Republicans in the Senate seem reluctant to go along. We’ll see how it goes.

Many economists and business leaders say more aid is needed as the economic recovery stalls and many families and small businesses struggle to stay afloat. No wonder many more people have fallen into poverty this year. James Sullivan explains:

“There are two ways to counteract this upward trend in poverty: One is a dramatic improvement in the labor market. The other is more support from the federal government. Given the state of the virus, I wouldn’t bet on significant improvement in the labor market in the short run.”

Poverty levels actually decreased in the spring, despite the widespread business closures to reduce the spread of the pandemic, according to Sullivan and Meyer, after Congress passed generous aid benefits including enhanced federal unemployment aid and one-time $1,200 stimulus checks that went to 160 million Americans. But the situation began to reverse in July, after most federal stimulus checks were spent, and poverty has been growing quickly ever since.

Poverty Rise Hitting Minorities & Under-Educated Most

Poverty is now higher than it was at the beginning of the year, a warning sign of the long-lasting effects of the deep recession. Since June, poverty has risen the most for Black Americans (up 3.1 percentage points, or 1.4 million people) and for Americans with only high school degrees or less (up 5.1 percentage points, or 5.2 million people).

These workers have experienced the largest job losses during the recession as many work in low-wage restaurant, travel and retail positions, which have been hit hardest by the pandemic.

Sullivan and Meyer say the data they are seeing suggests that poverty rose the most in states which did not do a good job processing unemployment applications quickly.

A recent report from the Government Accountability Office, a nonpartisan audit agency, also found many states have been paying so-called “gig economy” workers (those who lost their jobs and had to switch to other professions) and self-employed workers unemployment aid that is below the poverty level.

Households with children have also seen a larger-than-average increase in poverty (up 2.9 percentage points since June) as many parents have struggled to go back to work while their kids participate in virtual schooling from home. About 2.3 million children under 17 have fallen into poverty since June – a huge increase.

The report also warns that poverty rates may continue to soar due to the expiration of additional benefits at the end of this month. The last two federal emergency unemployment programs in the CARES Act (including Pandemic Unemployment Assistance, for those usually not eligible for regular unemployment insurance) expired December 26.

According to a separate analysis by the Century Foundation, up to 12 million workers who rely on these programs lost them on the day after Christmas, which will add to the more than four million Americans that have already exhausted their federal unemployment benefits.

Making matters worse, more than 14 million American households are at risk of eviction, according to recent reports, with nearly 5 million of those households expected to receive eviction notices starting January 31 when a ban issued by the Centers For Disease Control lapses.

Again, these risks are highest among minorities and Americans who have only a high school education or less. 

Conclusions & The Very Questionable Outlook For 2021

The number of Americans falling into poverty is exploding with the end of federal stimulus programs. While President Trump just signed a new $900 billion stimulus package, Congress is considering a potentially large new round of stimulus checks as this is written. Assuming additional relief is coming, it may be too late for millions of Americans who may lose their homes or apartments soon after January 31.

As I wrote in my Blog on December 10, the latest broad survey of economists and forecasters found most expect a strong US economic recovery in the second half of next year. Yet that positive outlook is based on two critical assumptions:

First, they assume the latest COVID-19 spike will be contained just ahead and will not surpass the spike seen earlier this year. That is a dangerous assumption in my opinion. And it also assumes there will not be another widespread shutdown of the economy in early 2021. But as we all know, that remains to be seen. It could happen.

Second, the widespread belief among forecasters that the economy will fully recover in the second half of 2021 did not take into account the huge number of families which have fallen into poverty over the last several months, much less those who will in the coming months.

Thus, I believe it is far too premature to be so optimistic about a full economic rebound in the second half of next year. The truth is, we just don’t know what the future holds. As a result, I will not be surprised to see many forecasters downgrade their projections for how well the economy does next year in the weeks just ahead.

Happy New Year & Best Wishes For 2021!

In closing, I hope you and your family had a wonderful Christmas or whatever holiday you were celebrating. We had a great Christmas! The kids and their spouses came home for several days, after we all missed being together at Thanksgiving. We enjoyed lots of wonderful conversations, great food and, of course, lots of football.

Debi and I are so blessed to have great kids!

Let me end by wishing you all a Happy & Prosperous New Year! While I have some reservations about 2021, I am confident we’ll get through it OK, especially if the Republicans hold the Senate by winning at least one of the two Georgia runoff elections on January 5. We’ll see.

Finally, thank you to all of our clients and everyone who reads my weekly E-Letter and Blog. As always, feel free to share my writing with anyone you wish (FYI, we never solicit them). And I always love to hear from you with comments or suggestions or whatever may be on your mind.  

Wishing you a happy & successful New Year,

Gary D. Halbert

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