Injection of economic recovery assistance drives Q1 2021 personal income growth

Pew Charitable Trusts recently published data demonstrating that Q1 2021 experienced the largest year-over-year personal income growth rate since 1948. All states recorded increases in total personal income, and 27 experienced their strongest year-over-year growth on record. This sharp uptick is largely attributed to an “unprecedented” increase in government aid and pandemic-related federal economic relief packages, primarily received through Social Security, Medicare and Medicaid, safety-net programs, and state unemployment insurance, according to the report.

Their findings suggest that federal aid in Q1 addressed and counteracted some of the recession outcomes experienced after the 2007 financial crisis. According to Pew, the Great Recession saw a decline in personal income by roughly 15 percent before recovering, with little difference made by government assistance. The report authors estimate the pandemic-driven recession would have resulted in around a 6 percent decline in personal income had there not been any government assistance.

Congress has taken a different strategy to spending through the pandemic recession than during the previous two recessions. Injecting financial aid to both national welfare programs and individual recipients helped raise personal income by about 9 percent. Overall, U.S. personal income in Q1 was roughly 15 percent higher than it would have been without government assistance. Without government assistance, the report claims that “19 states would have experienced declines in total personal income."

Pew notes that earnings still fell in 10 states (Alaska, Hawaii, Louisiana, North Dakota, New Jersey, New Mexico, Nevada, New York, Oklahoma, and Wyoming) despite the additional assistance. As pandemic-related financial assistance likely declined in Q2, personal income levels are more likely to experience a dip in Q2 compared to Q1.