Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
Updated on Thursday, September 10, 2020
By early April, 52% of adults with incomes of less than roughly $37,500 reported that they or someone in their household lost a job or took a pay cut. MagnifyMoney researchers sought to compare spending and earnings behavior from January through May 2020 in low-income ZIP codes to check for early impacts from the coronavirus pandemic.
National spending levels each month in low-income ZIP codes were lower than in January, with the largest drop in April before rebounding after Americans began receiving economic impact payments. Earnings decreased each month, too, but the largest drop came in May. Here’s what else we learned.
- Key findings
- Spending has gradually outpaced earnings
- Potential dollar impact on monthly earnings, spending
- Rhode Island sees biggest low-income spending decline
- Nevada sees biggest low-income earnings decline
- Consumers in low-income ZIP codes reduced their spending by a monthly average of 7.7% through May, relative to January. Meanwhile, earnings dropped by a monthly average of 14.7% in the same period, relative to January.
- Average annual expenditures for the lowest 25% of earners were an estimated $26,342.30 as of 2018, translating to a $842.27 drop in spending for the first five months of 2020.
- The average annual income for the lowest 25% was an estimated $31,700 as of 2018, corresponding to a $1,937.77 drop in potential earnings for the first five months of 2020.
- Low-income spending fell the most — 55.5% — in Rhode Island in April.
- Low-income earnings dropped the most — 52.4% — in Nevada in May.
Spending has gradually outpaced earnings
Earnings and spending, percentage-wise, didn’t shift significantly prior to the start of the COVID-19 crisis in the U.S. back in January and February, with both increasing or decreasing no more than 1.3%.
Earnings and spending both decreased between 7.2% and 9.1% in March. After that point, the two dramatically diverged, with spending going from a 20.5% drop in April to an 8% dip in May. Earnings, on the other hand, continued to plummet, with a 30.1% drop in April and a larger 35.4% dip in May.
This reveals that consumers in low-income ZIP codes spent more in May — at the same pre-pandemic levels in the U.S., according to a report from Opportunity Insights, a team of researchers and policy analysts based at Harvard University — while their earnings continued to drop, painting a picture of low-income earners falling into a greater deficit and depleting savings accounts.
Many Americans began receiving economic impact payments on April 15, which may have influenced the drastically increased spending among low-income households.
Though we looked at the early months of the COVID-19 crisis, it’s interesting to note that by mid-August, consumer spending for low-income earners was even, relative to January. From June 21-22 and on August 9, consumer spending was up 0.9% relative to January.
Potential dollar impact on monthly earnings, spending
Using a baseline for the lowest 25% of earners of an estimated $2,641.67 for monthly income and $2,195.19 for monthly spending, spending and earnings didn’t change by much in January and February, with spending slightly increasing in January.
By March, both spending and earnings for low-income earners took big hits:
- Potential spending drop: $199.16
- Potential earnings drop: $190.43
The hits for low-income earners kept coming in April:
- Potential spending drop: $449.21
- Potential earnings drop: $794.00
At the end of this five-month period (through May), the results look stark. Based on our estimated values, low-income households could have seen a cumulative $842.27 dip in spending and a $1,937.77 drop in income.
Further, based on our income and spending estimates, the average low-income earner has the potential to save $446.48 per month. By May, that shifted drastically to a monthly loss of $348.66.
Rhode Island sees biggest low-income spending decline
Rhode Island consistently saw the biggest spending declines among low-income earners in the five-month period, ranking at the top in January (11%), March (34.3%), April (55.5%) and May (40.8%). In February — the only outlier month for Rhode Island — it was third at 6.3%.
Connecticut was also consistently among the states with the largest reduction in low-income spending, registering its biggest drop in April — 36%. New Hampshire and South Dakota also saw some of the biggest plunges in low-income spending in four out of the five months, with New Hampshire’s biggest fall in spending at 49.3% in April and South Dakota at 36.7% in April.
Because April saw the biggest spending hit, here’s a breakdown of the month:
As for the biggest spikes in spending, January and February — pre-pandemic in the U.S. — were the only two months where the 10 largest increases were all positive figures.
In March, only two states — Hawaii (5.6%) and the District of Columbia (0.1%) — saw an increase in spending compared to January. In April, every state saw a decrease in its spending levels. In May, five states — Tennessee, Indiana, Maine, Wyoming and North Dakota — saw spikes.
Nevada sees biggest low-income earnings decline
Pre-pandemic, no state really stood out for its earnings’ growth or decline amid households in low-income ZIP codes.
In April and May, though, every state — except Hawaii — saw double-digit percentage dips in low-income earnings, relative to January.
Because May took the largest percentage hit relative to January, here’s a look at the biggest drops in the month:
Nevada as a state took the biggest hits in both April and May — 46.6% and 52.4%, respectively.
Hawaii — the outlier we mentioned — saw an increase in earnings by 19.8% in April and 60% in May. Previous MagnifyMoney research showed Hawaii as the second-most-dependent state on the additional $600 in unemployment benefits that expired at the end of July.
Looking at that same $600, MagnifyMoney previously found out that only 31.3% of eligible workers in Hawaii would take home less through unemployment insurance and the $600 supplement, which was less than the national average of 38.5%. These factors could both help explain why Hawaii’s income was an outlier during these months.
LendingTree analysts used the Opportunity Insights Economic Tracker, which uses anonymized private-sector data, to look at the impact of COVID-19 on economic indicators. All percentages are indexed values, showing the change compared to mean values in January 2020.
- Low-income spending was defined as: “Seasonally adjusted credit/debit card spending by consumers living in ZIP codes with low (bottom quartile) median income.”
- Low-income earnings were defined as: “Earnings received by low-income employees working in ZIP codes in the bottom quartile of national median income.”
There wasn’t reported spending data for Alaska and Vermont, nor was there reported earnings data for Alaska and Wyoming.
Numbers were reported on a rolling seven-day basis and were averaged simply to estimate monthly changes. To estimate dollar changes to both earnings and spending during this period, researchers compared these to the latest available (2018) expenditure data from the U.S. Bureau of Labor Statistics and earnings data from the Tax Policy Center. Because these sources reported numbers as quintiles (20th percentile) rather than quartiles (25th percentile), estimated quartiles were derived by dividing the difference between the ceiling and the floor for the second quartile by four and adding it to the floor.