‘Upside down’ recession lifts some in 2020

Aid and forbearance mean some US households are weathering pandemic

For months, Americans have barely dined at restaurants or traveled for vacation. There have been no games or concerts to attend. Gym and other memberships mostly remain frozen.

Forced into lockdown mode by the coronavirus, people put big purchases on hold and scaled back their spending. Around the same time, mortgage lenders, student loan collectors and other creditors offered struggling borrowers a break on payments. And stimulus checks from the government arrived.

These trends have come together to form an unlikely silver lining to the economic recession, which set in eight months ago: Despite the pandemic’s economic devastation, which has tipped millions of people into unem-ployment, many American households are in relatively good shape.

Since April, consumer savings have increased, credit scores are a record high and household debt has dropped. The billions that banks set aside at the start of the crisis to cover anticipated losses on loans to customers have been largely untouched. And lending at pawnshops and payday lenders, where business tends to boom during downturns, has been unexpectedly slow.

“Everything was upside down,” said John Hecht, an analyst at the investment bank Jefferies. Usually, in times of distress and unemployment, more people find themselves with deteriorating credit and are forced to seek high-inter------

est, or subprime, loans, Hecht said, but not this year.

The pain may still be coming. Banks and other consumer lenders are bracing for financial stress next year, as millions of people remain out of work and the labor market’s rebound shows signs of stalling. Athird surge of coronavirus cases has taken hold in the United States, and additional stimulus aid is stalled.

The number of people living in poverty has grown by 8 million since May.

But for now, households are weathering the turmoil largely because of the unusual nature of the downturn. The pandemic ended America’s longest economic expansion on record, meaning that people cameinto this recession in better shape than theywere in when the Great Recession took root in 2008.

Back then, risky mortgages metastasized into a crisis that upended the banking industry; this time, banks and borrowers aren’t facing that kind of structural threat.

This time, too, the government’s rapid aid efforts blunted a bigger crisis. Expanded unemployment benefits, $1,200 stimulus payments and aid to small businesse shad an immediate impact this spring. Thosewho lost their jobs used themoney to kee pup with rent and other bills. Others used it to pay down debts, or socked it away in savings.

Since he lost his job as a toy designer in March, Daniel Brennan has been holding things together through a combination of aid money and loan relief programs. A six-month forbearance on federal student loan collections reduced his monthly expenses by $280.

Brennan, who is separated and had moved into his own apartment shortly before the pandemic took root, gave up that apartment and returned to the house he owns in Willow Grove, Pennsylvania, with his soon-to-be ex.