The Good, the Bad, and the Ugly in American Well-Being

By Karen Petrou and Matthew Shaw

Yesterday, FRB Vice Chairman Clarida said that the U.S. economy is in “in a good place.”  However, The Fed’s new study of American economic “well-being” shows that huge swaths of the United States are struggling harder than ever before to make ends meet.  All but the most affluent Americans asked about how well they’re doing don’t feel anywhere near that good about it.  Combine this with new data on the evaporating American middle class and an ugly picture quickly merges.  In it, the prosperity in which the Fed takes such comfort rests thinly atop millions – indeed a hundred plus million – of Americans who are barely getting by at the height of the business cycle following a record-breaking “recovery.”  No wonder that so many Americans remain so angry about their economic prospects and why political polarization is sure to define the 2020 election at least as much as it determined 2016’s outcome.

Here are just a few key findings from the latest Fed report:

On income equality:

• Think you’re broke?  26 percent of adults have a family income of less than $25,000, which was just about the federal poverty level for a family of four in the contiguous U.S. in 2018.  Another 11 percent have a family income above $25,000 but below $40,000.  Thus, more than one-third of Americans have family income below middle class as the Fed elsewhere defines it ($40,000).

On employment:

• Only two-thirds of adults report that they are working as much as they want.  One in 10 are not working and want to work, while two in 10 are currently working but want to work more hours.  Labor participation thus is clearly not anywhere near as high as overall employment numbers imply.
• 24 percent of prime-age adults reported not working in the month prior to the survey, with an about even split between those who did not want work and those who did but were unable to find it.  35 percent of those not working cite a health limitation and 23 percent said they could not find work.  As we have noted, disability is a profound barrier to labor participation despite the ability of many who want to work also to successfully gain paid employment.

• 50 percent of blacks and 52 percent of Hispanics with a high school degree or less want to work more, compared to 31 percent of whites with the same level of education.
• Three in 10 adults reported engaging in at least one gig activity in the month prior to the survey; 30 percent of respondents say they regularly earned money from gig activities in all or most months of the previous year.  Signs of financial fragility (i.e., difficulty handling a $400 unexpected expense, using alternative financial services) are slightly more common for gig workers and markedly higher for those who use gig work as their primary source of income.

On economic resilience:

• The percentage of Americans who can handle a tire blow-out remains virtually unchanged. The share of Americans who would have difficulty handling a $400 emergency expense remains at about four in 10; 61 percent of adults say they could cover such an expense using cash, savings, or a credit card paid off at the next statement, up slightly from 59 percent last year and from only 50 percent in 2013.  27 percent say they would borrow or sell something to pay for the expense, and 12 percent cannot cover it at all.  The annual $400 resilience criterion is not adjusted for inflation and thus represents less purchasing power in each successive year. 

• 17 percent of adults cannot pay all their monthly bills in full.  Another 12 percent would be unable to do so if they also faced an unexpected $400 expense.
• Almost one quarter of adults skipped necessary medical care in 2018 because they were unable to afford it.  This jumps to 36 percent for those with a family income less than $40,000.  When income is greater than $100,000, eight percent of families still are forced to skip a medical treatment due to cost.  Four in 10 adults with medical expenses in the last year have unpaid medical debt.
• Only 36 percent of non-retired adults think that their retirement saving is on track, and one-quarter have no retirement savings or pension at all. 

On racial, educational, and geographic disparities:

• Gaps in reported economic well-being by race and ethnicity have persisted despite improvements in overall well-being since the Fed started the survey in 2013.  Nearly eight in 10 whites say they are “doing at least okay” financially, compared to only two-thirds of both blacks and Hispanics.
• 87 percent of adults with a bachelor’s degree or higher report that they are doing at least okay financially, compared to only 64 percent of those with a high school degree or less. 
• 66 percent of adults living in urban areas describe their local economy as either good or excellent, compared to only 52 percent of rural residents.

On intergenerational mobility:

• More than one-quarter of adults under age 30 report receiving some form of financial support from someone outside their home (most often a parent). 
• Only 17 percent of adults under age 30 whose parents did not attend college obtained a bachelor’s degree, compared to 71 percent of young adults who have at least one parent with a bachelor’s degree.  59 percent of young adults with parents that have a high school degree or less also have only a high school degree or less.