The report said, according to the Federal Reserve, 110 million Americans entered the crisis with credit card debt, and CreditCards.com said 23% of credit card debtors have added to their debt as a direct result of Covid-19. Forty percent of U.S. households were living paycheck to paycheck before the crisis began, according to the Fed, meaning job losses have prevented many from paying their rent or mortgage bills. Thirty-one percent of American households did not pay their rent in April, according to the National Multifamily Housing Council.
Renters and landlords are not the only ones at risk. The situation is also dire for homeowners. More than 3.8 million U.S. households did not pay their mortgage in April, or about 7% of all home loans, according to the Mortgage Bankers Association.
According to Moody’s Analytics, the commercial vacancy rate is 17%, which is the highest since 1991, and it will rise to 20% by the end of the year. In the past 10 years, investors spent half a trillion dollars to construct office buildings and nobody knows how much of that space will be needed when people return to work.
Many people are not likely to regain their employment soon, the report said. More than 40 million people filed for unemployment from March 1 through May 29, according to the Department of Labor, amounting to a 17% unemployment rate, a level not seen since the 1930s. The Economic Policy Institute says the actual number of people who have lost their jobs is even higher at 55 million because the DOL counts only those who have filed for unemployment benefits.
Everything from agricultural businesses, to states and municipalities, to higher education will feel the negative effect of Covid-19, the report said.
“The economy in this crisis may fare worse than it did during the credit crisis 12 years ago. It may even be worse than the crisis the nation experienced in the 1930s,” the report said, “Already, corporate bankruptcy filings have increased 26% from a year earlier, according to Epiq Global, with many more filings to come.”
In addition, the report said, Covid-19 exacerbated what was already a deep and growing national crisis: America’s lack of retirement readiness. Prior to Covid-19, the amount of money saved for retirement by U.S. households was $3.7 trillion less than what was needed for them to avoid running out of money in retirement, according to the Employee Benefit Research Institute.
All of these negative effects are playing out even as the stock market is rebounding. The report explained stock prices do not reflect the health of the economy, and stock prices can rise in the midst of a major decline. Over the years, 20 of the biggest daily percentage increases for the Dow Jones Industrial Average have occurred during major bear markets or crashes.
Within all the bad news, the report held out hope that investors can overcome their financial biases and invest wisely. The report stressed the need for investors to acknowledge the harm the virus is doing to the economy and face the dangers inherent in the stock market.
The report also outlines what investors need to do now to protect themselves, such as confirming with an independent third party that their portfolios are properly diversified based on each individual’s personal circumstances. In addition, investors need to realize their risk tolerance may be different now than it was during the 2007 to 2009 crisis since they are now 12 years older and closer to, or in, retirement, the report said.