NEW • CONSUMER FINANCE SERIES

Part 1: The real impact of COVID-19 on income

Thursday, June 4, 2020 • 1:00 PM EST

Key Takeaways:

1. Over 60% of Americans experienced a decline in income during the pandemic, both in the form of job losses and salary reductions.
2. Low income segments of the population were the most likely to suffer a total loss of income (14%). Conversely, high income individuals were at a much higher risk of an income reduction, but were much less likely to suffer total income loss (4%).
3. Men and younger demographics were more likely to experience income loss than their counterparts.
4. Over two thirds of Americans have now received their much needed stimulus checks.
5. The vast majority of income losses arise from salary reductions, not job dismissals. As a result, we believe that looking at unemployment figures to assess the financial health of consumers coming out of COVID-19 is deeply flawed and incomplete.

Despite the fact that the U.S unemployment rate continues to skyrocket, consumers are still spending. In February, the average U.S. consumer spent $2,538 for the month (measured as all debits from their accounts). In May, that figure was $2,270, which is only a 10.6% decline. So how is it that we’re looking at 40M+ jobless claims and yet overall spending has not been impacted nearly as much as expected? To answer this, over the next few days we’ll be taking a nuanced look at how consumers are generating income, how that’s changed as a result of COVID-19, and how those changes have impacted consumer spending.

Prior to the coronavirus, the average consumer in this panel was making roughly $45K per year (post-tax). Today, their prorated annual income sits at $36K which is a decline of -19.3%.

YoY Growth (monthly)

Airlines
Car Rentals
Lodging

YoY Growth (monthly)

Airlines
Car Rentals
Lodging

As is often the case, the hardest hit are often the most vulnerable. Those in the lowest income brackets (< $25K) were much more likely to have lost their jobs during the pandemic, whereas higher income brackets were more likely to be looking at a salary reduction. This is probably a result of the nature of the lower-waged jobs, which include the many service workers(i.e. waiters, bartenders, masseuses) that were immediately impacted by the closure of retail storefronts.

Weekly GMV - New vs Existing Customers

Airlines
Car Rentals
Lodging

While job losses have been more common for those in the lowest income brackets, the average net income change for that segment was a mere $347/year decrease. This likely stems from the fact that the <$25K segment also consists of early-career employees who are most likely to receive salary increases, neutralizing the impact of job losses. Conversely, those making $100K+/year had the lowest job loss rate during the pandemic (4.1%), but experienced the largest net decrease in salaries, averaging at ~$41K for the group.

AVG Basket Trend - weekly

Airlines
Car Rentals
Lodging

Income losses appear to have no connection to whether the state was hard-hit by COVID-19. For example New York, the hardest hit state in the US, saw an average income decline of 20%, while Ohio which reported a fraction of New York's confirmed COVID cases and deaths, saw incomes decline by 23%.

Age, on the other hand, appears to be heavily correlated to the level of income loss experienced as younger demographics were the hardest hit, both in terms of salary decrease and full income loss. This again likely stems from the nature of jobs available to younger demographics (i.e. services, retail), which were particularly hard-hit during the pandemic.

It also appears that income loss affected men the most. Men had the highest likelihood of full income loss (at 8.5% vs 6.8% for women), and the highest net decrease in salaries (20.9% decrease vs 18.9% for women). We were unable to identify the drivers behind this phenomenon.

Note: Due to the size and makeup of our panel, we avoid breaking out "Other" genders.

Given the dramatic and wide-reaching impact of COVID-19 on our finances, it's no surprise that the government quickly stepped in to provide the public with much needed stimulus support. And while the deployment of stimulus checks faced numerous delays and challenges, it appears that more than two thirds of Americans have now received their stimulus payments, negating some of the income losses experienced in recent months.

Combing through these figures, we're beginning to wonder if the media's focus on the unemployment rate misses the point. The vast majority of wage deductions appear to occur among those that continue to be employed, but make less than before (lower commissions due to decreased sales, negotiated a pay decrease to retain employment). This segment of the population accounts for % of all wage losses since the start of the pandemic, and yet they don't show up on any high level employment metrics.

Tune in next week as we continue this report, shifting our focus from income to consumer debt.