Fed surprise: Top 1 percent gained less during the pandemic than lower-income Americans
Two new Federal Reserve reports lend strong support to the resilience of the economy despite the COVID-19 pandemic and its recession. The first report, on the economic well-being of U.S. households, shows that most people enjoyed continuing well-being in 2020.The executive report of the broader survey is here; this discussion is based on their more focused results. The second report, an update of the distribution of wealth of U.S. households since 1989, shows that wealth rose rapidly in 2020. Some critics will dismiss this achievement, claiming this was only for the rich and white Americans. But the largest percentage gains actually were for Black Americans and those in the bottom 50 percent of wealth distribution.
In the first report, 75 percent of people surveyed were “adults doing at least okay financially,” unchanged from before the pandemic in 2018 and 2019 and the highest percentage since the survey began in 2014. For whites, 80 percent were “doing at least okay financially,” up from 79 percent in 2019 and 78 percent in 2018. The percentage of Blacks and Hispanics “doing at least okay financially” declined slightly to 64 percent in 2020. Hispanics had a larger decline, falling 2 percentage points from 2019, after falling 1 point in 2018. Blacks fell 1 point per year from 2018 to 2020.
A second question on who could make a $400 cash payment for an emergency expense — a measure of financial stress — showed most groups improved in their ability to do so. All adults and whites improved by 1 percentage point, to 64 percent for all and 72 percent for whites. Blacks and Hispanics improved 2 percentage points each; Blacks rose to 45 percent in 2020 and Hispanics, 47 percent. Those with some college and those with less than a high school diploma declined in their ability to make this payment; the former declined 2 percentage points to 59 percent and the latter fell 4 points, to 29 percent. All four groups scored better in 2000 than in 2018, however, despite the pandemic.
For a third question, who was “worse off than 12 months earlier,” the results fully reflect the recession/pandemic: 24 percent of all adults registered in this category, up from 14 percent in 2019 and 13 percent in 2018. These results were spread across all categories. By race and ethnicity, the rise in those “worse off” in 2020 was largest for Hispanics, rising 14 percentage points to 36 percent in 2020. Blacks rose 12 percentage points, to 27 percent, and whites rose 9 points, to 22 percent.
From a longer-term perspective, the 10-point rise in the adults “doing worse” (to 24 percent) is less striking because the percentages in this category had improved dramatically since the first survey in 2014. Despite 2020’s disturbing results, there was less deterioration compared with six years earlier, when 21 percent of all adults registered as “doing worse.” For whites, the 2020 level of 22 percent was the same as in 2014. For Blacks and Hispanics, there was a rise of 8 and 10 percentage points, respectively, to 27 percent for Blacks and 30 percent for Hispanics.
The second report shows U.S. wealth rose in every quarter of the pandemic except for the first quarter of 2020, at the end of which the pandemic was just beginning. Wealth rose 10.3 percent from the end of 2019 to the fourth quarter of 2020 — faster than the 9.3 percent average annual rate for the previous two years. It’s hardly what the gloom and doom of the past year might have suggested. Black wealth rose 11.6 percent, outstripping the overall gain and that for whites, 10.2 percent, and Hispanics, 9.9 percent. This suggests that Blacks continued the 2016-2019 narrowing of the racial wealth gap.
For the year as a whole, the bottom 50 percent of the wealth distribution had the largest percentage wealth gain — 23.2 percent — followed by the top 1 percent, who gained 11.7 percent. The next two wealthiest groups — 90 to 99 percent and 50 to 90 percent — each gained 9.3 percent. The unprecedented pattern of gains arose from the broad-based COVID-19 relief payments and supplemental unemployment pay, as well as the unprecedented pace of personal saving. For the 14 months to April 2021, Americans saved $2.5 trillion more than they did in the pre-pandemic year — about 28 percent more than the rise in transfer payments, including all benefit programs from the federal government, since the pandemic began. This implies that more than all of the temporary benefits were saved, or none was consumed, so they actually provided no fiscal stimulus.
Another factor that shows how well lower-income people did during the pandemic and its recession is the poverty rate. The share of the population in poverty hit its lowest historical level in 2019 at 10.5 percent. The Census Bureau publishes the poverty level annually, but the University of Chicago’s Bruce Meyer, Notre Dame’s James Sullivan and Zhejiang University’s Jeehoon Han have used monthly data from the Current Population Survey to track census estimates. Their estimates show the average poverty rate fell to 10.4 percent in 2020, a new record low. From March 2020 through April 2021, the estimated monthly average is 10.6 percent, near the lowest level in history.
The pandemic had dramatic effects on the U.S. and global economy, but Americans’ financial well-being and wealth improvements generally remained high. In the first quarter of 2020, when wealth fell for every group, it fell fastest for the top 1 percent and for whites. For the year as a whole, however, it rose for all groups — and rose the most for Blacks and those in the bottom 50 percent of the distribution.
John A. Tatom is a fellow at the Institute for Applied Economics, Global Health and the Study of Business Enterprise at Johns Hopkins University, and a former research official at the Federal Reserve Bank of St. Louis.