(Reuters) – The coronavirus crisis drove a dramatic weakening in American households’ finances as millions of people lost work or had their hours or pay reduced, with low-wage workers taking the biggest hit, according to a report released by the Federal Reserve on Thursday.
Nearly one in five of all adults either lost their jobs or had their hours reduced at work in March, the survey found. The job cuts were most severe for lower-income workers, with 39% of people with a household income of less than $40,000 reporting a job loss in March. That compares to 19% of workers with household incomes between $40,000 and $100,000 and only 13% of workers with household incomes above $100,000, the Fed said.
The majority of people who lost work because of the virus were optimistic the job losses would be temporary. Nine in 10 people who were furloughed or lost their jobs said their employers told them they would return to their job at some point.
However, people were not sure when they would be able to return to work, since 77% of workers who lost their jobs were told they would be able to come back to their jobs but did not get a set return date.
The Fed’s latest annual Survey of Household Economics and Decisionmaking found that consumers’ finances were largely improving in 2019 before the pandemic, but many workers were unprepared to deal with a financial crisis.
Before the pandemic, 30% of adults said they could not cover three months of expenses by borrowing or using savings. Among adults that had not retired, 25% lacked retirement savings before the crisis, the survey found. Twelve percent of adults said they did not have the savings or credit to cover an unexpected expense of $400, unchanged from the 2018 level.
Racial disparities persisted in 2019, and black and Hispanic workers were less prepared to deal with a financial emergency. Before the pandemic, 35% of black workers and 29% of Hispanic workers said they could not pay all of the current month’s bills, compared to 19% of white workers.
The Fed polled 12,000 adults in October about their financial situations in 2019 as part of the annual survey of household financial health. Following the wave of business shutdowns and stay-at-home orders around the country in March, it added a survey of 1,000 people in early April to gauge how their circumstances had changed in the COVID-19 crisis.
Among those workers who faced a job loss or reduced hours, 48% said they were either struggling to make ends meet or just getting by, but the figure may understate how many Americans were struggling financially, the Fed said.
“These results may not reflect the full extent of financial hardship that will result from the pandemic,” the Fed said, noting the survey was conducted soon after households began absorbing the hit from mass business shutdowns.
Indeed, at the time the survey was taken, from April 3-6, about 10 million Americans were reported to have filed for unemployment benefits. By the latest reading of that closely watched measure, released on Thursday and covering the week that ended May 9, that number had more than tripled to 36 million.
Overall, people with higher incomes and higher levels of education fared better financially. More than half of all workers, or 53%, did some work from home in the last week of March, but people with higher levels of education were more likely to have that option. Sixty-three percent of workers with a bachelor’s degree were able to work from home, while only 20% of workers with a high school degree or less could do their jobs from home.
Reporting by Jonnelle Marte; Editing by Dan Burns, Chizu Nomiyama and Aurora Ellis