No Recession in Income

The most often asked question during my client and advisor presentations the past four months has been "why is the stock market rallying so much with so many people out of work?" Ignoring the long-term impact on economic growth due to the ballooning debt obligations, the CARES Act has played a major role in keeping us out of a Depression.

This week's Chart of the Week shows the huge jump in income during the recession. This isn't unprecedented. We saw a 5% jump in income in 2008 when the first round of stimulus hit and a few more positive increases when the American Recovery and Reinvestment Act of 2009 was implemented.

As you can see during the 2008-2009 recession, a simple jump in income is not going to stop the recession. We can think of it as a pain killer to make the patient more comfortable, not a cure for the disease. As Congress and the Trump Administration debate yet another stimulus bill, the focus will be on getting more money into the hands of individuals. I saw this chart on Twitter illustrating the change in income since February. (UI=Unemployment Insurance)

Unemployment Insurance contributed a positive 8% to income growth, more than off-setting the 4% drop in wages and salaries. I'll stick with my own advice to give grace, prayers, and patience for our leaders. Millions of people are out of work and are suffering while the economy continues to be held back by a virus we are still learning more about each day. Plenty of people received money who didn't need it just as plenty of people did not receive enough money to avoid financial disaster. There are no easy answers or quick solutions.

When this pandemic caused recession is over we can then debate the stimulus measures, policy actions, and most importantly, how in the world we pay back all the money without impacting future growth.

Author image
New Kent, VA
Jeff joined SEM in October 1998. Outside of SEM, Jeff is part of the worship team at LifePointe Christian Church where he plays the keyboard and bass guitar. He also coaches a club soccer team.