Showing posts with label Survey of Household Economics and Decision-making (SHED). Show all posts
Showing posts with label Survey of Household Economics and Decision-making (SHED). Show all posts

Thursday, May 21, 2020

Survey of Household Economics and Decision-making. Jin Yingzi, Impact Investing Intern. American University

The 2019 Survey of Household Economics and Decision-making (SHED) interviewed over 12,000 individuals via an online survey launched in October 2019. To understand recent financial conditions and to see how circumstances for families have changed, the Federal Reserve Board also conducted a survey in April 2020 on the financial repercussions from COVID-19.

The initial response from the 2019 survey showed that overall economic well-being had improved substantially relative to the overall economic well-being in 2013, the last time a similar survey was conducted. But differences in financial well- being still remained and widened slightly, across education levels and across racial and ethnic groups. Changes in monthly family income were a main source of financial strain. Financial support from family members or friends is one income source used to cover expenses. Most people worked as much as they wanted to, but many adults wanted more full time work. Few adults performed gig activities as a primary source of income. In 2019, many non-retirees were struggling to save, and those who did so frequently expressed discomfort in making investment decisions.

For banking and credit, most adults had a bank account and were able to get credit from mainstream sources. However, substantial gaps in banking and credit service access still existed, especially among racial and ethnic groups. The survey continued to indicate improvements in preparedness for small financial setbacks. However, some people could not fully pay their bills or would have been unable to do so if a modest emergency arose. Although most adults are satisfied with their housing and most own their own homes, younger adults, as well as those who are black or Hispanic, were not as satisfied with their housing and were less likely to own their own homes.

Economic well-being generally rises with education levels, but the likelihood of completing higher education varied by race, ethnicity, and family background. More than half of young adults under age 30 who went to college incurred school debt, Those who failed to complete a degree or attended for-profit institutions, were more likely to have fallen behind on their payments.

A supplemental survey conducted in April 2020 to obtain an updated perspective on financial conditions after the Coronavirus Aid, Relief, and Economic Security Act but before the payments were received. This survey found that about one-fifth of people experienced a job loss or a reduction in their working hours in March 2020. More than one-third of those who experienced a job loss or reduction in working hours expected to have difficulty with their monthly bills.

Current Economic Issues

The global spread of coronavirus has had devastating impacts on health and economy, and has exacerbated social and economic issues. Fed Chairman Powell (2020) released a report on the current economic issues due to the coronavirus in the United States,. He pointed out that the U.S. has temporarily shut down economic and social activities to control the spread of the coronavirus, which  has put downward pressure on the economy. Differing from previous recessions in the post–World War II period, which led to high inflation, the current downturn is without high inflation and an  economy-threatening bubble.

Powell briefly discussed measures taken so far to offset the economic effects of the virus, and outlined the path forward. Congress has provided about $2.9 trillion, roughly 14% of gross domestic product, to fiscally support households, businesses, health-care providers, and state and local governments. The Fed also created four new facilities to increase the flow of credit. First, the outright purchases of Treasuries and agency mortgage-backed securities restored activity in critical markets. Second, liquidity and funding measures, along with discount window measures, expanded swap lines with foreign central banks, and several facilities with Treasury backing to help smooth functioning in money markets. Third, with additional backing from the Treasury, the flow of credit to households, businesses, and state and local governments is more directly supported. Fourth, temporary regulatory adjustments encouraged and permitted banks to expand their balance sheets to support their individual and business customers.

The path ahead is both distinctly unsure and challenge to great downward risks. If the coronavirus crisis gets deeper, there will be longer-term impacts and lasting harm to the productivity of the economy. An extended recession and lagging recovery may additionally discourage enterprise funding and expansion, further limiting the resurgence of jobs as well as limiting the growth of capital stock and slowing the pace of technological advancement. A loan from a Fed facility can provide a bridge between temporary interruptions to liquidity, and these loans will assist many borrowers get through the current crisis. But the recovery may take some time, and the passage of time can turn liquidity issues into solvency problems.