There’s good news in the economic data, but low- and moderate-income households face challenges There’s good news in the economic data, but low- and moderate-income households face challenges

Some closely watched numbers are strong, but the Fed is focusing on the full picture Some closely watched numbers are strong, but the Fed is focusing on the full picture

May 29, 2024

It’s not difficult to find good news in the current economic data. The national unemployment rate, for instance, was 3.9% in April, low by historic standards and right at its pre-pandemic level. New England’s unemployment rate came in even lower at 3.3%.

In addition, as MIT economist David Autor has noted, the tight labor markets of the pandemic era led to rising wages for low-paid workers. That reversed a four-decade trend of increasing inequality between low- and high-wage workers.

Meanwhile, the Biden administration has been making its case that the recovery from the pandemic-induced downturn is the most equitable in recent history.

But amid the positive signs, there are several troublesome trends worth scrutiny regionally and nationally. The cost of housing is up. Homelessness and evictions are on the rise in New England. Personal debt is up.

As these trends take root, many relief measures that countered the pandemic’s effects on household economic security are expiring or gone. This is a particular concern for the low- to moderate-income (or LMI) populations who benefitted most from the aid. And it’s one reason we at the Federal Reserve Bank of Boston watch the data so closely.

The Boston Fed’s vision is “a vibrant economy that works for all.” To get there, we need to listen to what the data are telling us about conditions for LMI populations. Right now, there’s undoubtedly good news. But there’s also cause for concern.

Housing costs, rent, and evictions are all higher – which hits LMI households harder

The tools fiscal policymakers and the Fed used to ease the impacts of the pandemic were blunt, but they worked. Rent moratoriums and mortgage forbearance kept people in their homes, increases in food assistance programs ensured people weren’t hungry, and lending facilities set up by the Fed saved jobs by keeping credit flowing to businesses. The loss of these and other pandemic-era supports is particularly difficult for LMI households across New England, given current trends:

  • Houses cost more: Home prices are increasing in New England faster than the national rate. Meanwhile, following the Fed’s efforts to tamp down inflation by raising interest rates, the average national mortgage rate was 6.94% as of May 23. That’s the highest we’ve seen it since the early 2000s.
  • Rents are higher: In the three of the six New England states, (Massachusetts, Connecticut, and New Hampshire), median gross rent exceeds the national median of about $1,300 per month. Massachusetts is the highest at more than $1,600 monthly, as of 2022.
  • Evictions are up: Eviction patterns suggest low-income renters are facing increased housing insecurity. All the New England states saw higher evictions in the first quarter of 2023, compared to the first quarter of 2019, before the pandemic. The increases were as high as 35% in Rhode Island.
  • More people are homeless: Between 2021 and 2023, the number of homeless increased in every New England state but Connecticut. In Massachusetts, it rose from roughly 15,079 to 19,141, or about 27%.
  • Rising wages are lagging rising costs: As noted above, inflation-adjusted wages have been on the rise, increasing most for those on the low end of the income spectrum. But they haven’t caught up with the rising costs of the inflationary period that began during the pandemic. Even before the pandemic, hourly wages didn’t provide a living wage for many families in New England, and that remains the case. In the starkest example among the six states, the average hourly wage in Massachusetts in April was $40.93, but the living wage for one adult with two children is $67.41, according to the MIT Living Wage Calculator.

The U-6 unemployment measure is on the rise, credit card debt is soaring

The “U-6” unemployment measure is another revealing metric because it counts the “marginally attached,” which includes people who aren’t working and stopped looking for work in the last year. The standard unemployment measure includes only those actively looking for work in the past four weeks.

The April U-6 measure has national unemployment at 7.4%, which puts a darker shade on the economic outlook That rate is near double the standard measure and the highest it’s been since November 2021.

Credit card debt is a final metric to note, since it’s growing rapidly. Last year, it hit $1 trillion in the U.S, for the first time. That number is certainly notable. But maybe it’s not all that surprising, given rising wages and income, the subsequent increased consumption, and rising prices from the inflationary period that began during the pandemic.

But accompanying the $1 trillion marker is the fact that credit card delinquencies keep rising. This is a major reversal from 2021, when Americans were rapidly paying off credit card debt with stimulus money, while avoiding big-ticket expenses like vacations. It also potentially sets the stage for a vicious cycle of larger and more enduring debt burdens for the LMI households who can least afford it.

Overall, the data indicate that, amid the good news, LMI populations in New England and nationally are feeling pressure from numerous angles, and that could impact everyone. The Fed can relieve some of the strain by using the tools at its disposal to fight inflation. But what else can be done to help LMI people? We’re asking that at the Boston Fed, and as we move deeper into a post-pandemic economy, it’s important that we ask it everywhere.

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