Aggregate Improvements in Household Finances Belie K-Shaped Recovery
|U.S. household net worth reached a record high during the third quarter, increasing by 5.1% since the end of 2019. Rising stock valuations contributed to much of the gain in wealth, but rising home values also played a role, according to the Federal Reserve. Savings deposits have jumped as well this year as households have managed finances conservatively.
These gains could potentially help boost the recovery next year if households resume consumption and spending patterns, particularly if they tap into their savings and leverage their improved finances to ramp up spending once public health concerns recede from view.
But the headline figures obscure the fact that not all households, in fact many, have not shared in this year’s financial gains. Pew surveys suggest that a little more than half of American adults participate in the stock market, and nearly a third of U.S. households rent their home, which means higher housing values have not enhanced their financial positions.
Meanwhile, the number of initial applications for jobless insurance climbed 19.1% last week, suggesting continued labor market churn. At the same time, the divergence between high- and low-wage job recovery rates persists, although it has not meaningfully widened since the early days of the pandemic.
Percentage Change in Employment Relative to January by Income Level
Restaurant Activity Retreating
|The hard-hit restaurant sector is encountering new headwinds heading into winter. Data provided by OpenTable indicates the number of seated diners at U.S. restaurants is down 64.7% YOY after recovering to as high as 39.1% below year-prior figures in early October. The share of restaurants open for reservations has also declined in recent weeks by nearly 10 percentage points to ~65.0%.
Colder weather appears to be playing a role in the slowdown as outdoor dining becomes impractical in parts of the country. Warm-climate cities such as Scottsdale, Miami, and Tampa have seen the strongest recovery in seated diners to about one-third below pre-pandemic levels. Meanwhile, northern cities such as Philadelphia, Seattle, and Minneapolis rank near the bottom in terms of seated diner counts.
But coronavirus-related restrictions have also added to the retreat in restaurant dining. In Los Angeles, for example, restaurant visits have ground to a halt after the state enacted a regional stay-at-home policy that banned in-person restaurant dining. As recently as late November, restaurant visits in the city stood approximately 66.0% below year-prior numbers compared to a 99.8% YOY decline currently.
Year-on-Year Decline in the Number of Seated Restaurant Diners
New Business Formation Surging During the Pandemic
|With the last three weeks of data yet to be collected, the number of business applications so far during 2020 is 17.7% higher than the 2019 total, according to Census Bureau data. Business applications accelerated this summer and continued at above-average levels after experiencing a modest dip during the spring as much of the economy shuttered.
As more job seekers are competing for fewer openings this year, labor market challenges may have prompted entrepreneurial growth. In comparison, the U.S. did not see a comparable increase in startups during the Global Financial Crisis, perhaps because the financial system has received meaningful support from fiscal and monetary policy and is more willing to back new businesses. Entrepreneurs could also be tapping into personal savings, as noted above, to cover startup costs.
From an industry perspective, online retailers lapped other sectors in the pace of business creation, accounting for approximately one-third of this year’s surge and further demonstrating the economic reshuffling caused by the pandemic. The faster pace of business formation has not been limited to one corner of the economy, however, as most industries have experienced an uptick this year.
Business Formation Applications: 2020 vs. 2019 & Online Retailer Share of 2020 Applications
The Weekly Briefing - December 14th, 2020
The Weekly Briefing – December 14th, 2020:
In This Week’s Brief:
- Aggregate Improvements in Household Finances Belie K-Shaped Recovery
- Restaurant Activity Retreating
- New Business Formation Surging During the Pandemic