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$2,000 Stimulus Checks Won't Hurt the Economy – Bloomberg

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Senate Majority Leader Mitch McConnell blocked a vote on a proposal for $2,000 stimulus checks, but it’s not dead yet.

Let’s get down to brass tacks: Sending $2,000 in direct payments to Americans is a politically effective but economically inefficient way to provide needed relief to workers and families.

When Congress recently approved a new stimulus package, it included $600 cash payments to Americans. But that struck many people as a measly gesture compared to the $1,200 checks issued in the previous stimulus, and considering the economic damage done by the pandemic over the nine months since the Cares Act. So when President Donald Trump called for $2,000 checks, Democrats immediately jumped on board and some Republicans followed.

The new $2,000 amount was approved in the House on Monday, though a vote in the Senate today was blocked by Majority Leader Mitch McConnell. The proposal is still very much alive, garnering support from both GOP Senate incumbents David Perdue and Kelly Loeffler, who face a runoff election on Jan. 5 in Georgia. Given the controversy, it’s worth asking how much the larger amount will actually help the economy.

I’ll start with the positives. Most of the unemployment benefits passed in the Cares Act expired at the end of July, and because of archaic unemployment systems in states, many eligible workers never got them. These individuals have gone months wondering if or when more fiscal relief would come, and when we’ll get the kind of economic reopening that will bring back millions of jobs in industries like travel and dining. The fiscal relief package just passed by Congress will reinstate those unemployment benefits for a while, but at a reduced level. For everyone that falls into these buckets, an additional $1,400 payment is an efficient way to provide additional relief without relying on state unemployment systems to process claims on time, and to make up for Congress letting relief lapse over the summer.

And checks are broadly popular with the public. According to Data for Progress, 78% of Americans support the $2,000 payments. There’s something to be said for giving the people what they want in a high-profile way. It makes them feel like the system is working for them and builds trust for the future. Arguably, it was the success of the $1,200 checks in the Cares Act that bought the political will for another round of fiscal relief this month.

Those positives dwarf the negatives associated with the checks. From a macroeconomic or distributional standpoint it would be better to tailor relief more to where it’s most needed — unemployed workers, or certain hard-hit state and local governments that continue to have big revenue shortfalls. But those options lack the political momentum that the $2,000 checks have. And a larger cash payment will still benefit these groups — for instance, money spent by individuals will be taxable, indirectly benefiting state and local budgets.

The bigger checks might be wasted on some recipients who don’t need the money — but not entirely. Any two-person households making $150,000 that receive the additional payments might just stick it into savings. Or maybe they’ll spend it on a Playstation 5 or a new set of AirPods Max.

Individuals with an impulse for gambling might use the money to buy speculative stocks or bitcoin. That could add some froth to the financial markets, but that’s not particularly harmful to the economy, either. With inflation and interest rates as low as they are, a little excess consumption of trendy gadgets or risky stock bets isn’t going to lead to any kind of economic overheating.

The bottom line is that checks are popular with the public, easy to deliver, will help the fortunes of those who are struggling, and don’t pose a near-term inflationary risk to the economy. Congress should go ahead and send ’em.

    This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Conor Sen at csen9@bloomberg.net

    To contact the editor responsible for this story:
    Susan Warren at susanwarren@bloomberg.net

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    Economy

    Canadian retail sales slide in April, May as COVID-19 shutdown bites

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    december retail sales

    Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

    Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

    “April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

    Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

    Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

    Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

    “These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

    The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

    The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

    (Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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    Canadian dollar notches a 6-day high

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    Canadian dollar

    The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

    Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

    Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

    Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

    The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

    The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

    Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

    Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

    Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

    (Reporting by Fergal Smith; editing by Jonathan Oatis)

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    Toronto Stock Exchange higher at open as energy stocks gain

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    Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

    * At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

    (Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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