American households and businesses have gone two months without the enhanced unemployment benefits, low-interest loans and other programs that helped prop up the economy in the spring. And now, after President Trump’s announcement Tuesday that he was cutting off stimulus negotiations until after the election, the wait will go on at least another month — and very likely until the next presidential term starts in 2021.
It could be a dangerous delay.
Already, many furloughs are turning into permanent job losses, and major companies like Disney and Allstate are initiating new rounds of layoffs. The hotel industry is warning of thousands of closures, and tens of thousands of small businesses are weighing whether to close up shop for good. An estimated one of every seven small businesses in the United States had shut down permanently by the end of August — 850,000 in all — according to data from Womply, a marketing platform. The deeper those wounds, the longer the economy will take to heal.
Economists say lawmakers should be acting immediately to send more money to workers marooned on unemployment by the recession, to businesses of all sizes that are struggling to survive until the pandemic abates and their customers return in full force, and to state and local governments that have seen tax revenues decline and are already moving to lay off public employees.
While they disagree about exactly how much federal aid the economy needs right now, virtually all economists, across the ideological spectrum, agree on one thing: The correct dollar figure is not “zero.” Most estimates fall in a range between $1 trillion and $2 trillion.
Mr. Trump appeared to open the door to piecemeal measures like aid for airlines and individual checks, and his Treasury Secretary, Steven Mnuchin, and House Speaker Nancy Pelosi spoke twice on Wednesday about a stand-alone bill for airline relief. But prospects for even a limited package were uncertain and would fall far short of the amount that many economists say is needed to keep businesses and households solvent.
“The risk to waiting is that we may find ourselves in a place where we’re unable to turn back, we’ll hit a tipping point,” said Karen Dynan, a Harvard economist and Treasury Department official during the Obama administration.
R. Glenn Hubbard, a Columbia University economist who was chairman of the White House Council of Economic Advisers under President George W. Bush, said the economy still needed $1 trillion in immediate aid for people, businesses and state governments. “Failing to act will have real economic consequences,” he said.
Jerome H. Powell, the Federal Reserve chair, echoed those concerns in a speech on Tuesday, arguing that the government should go big and that not providing adequate support carried risks for the economy.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth.”
Business leaders have made urgent pleas for help, arguing that the risk of not acting could doom entire sectors. The Business Roundtable, a group of chief executives from major corporations like Apple and Walmart, warned on Tuesday evening that “communities across the country are on the precipice of a downward spiral and facing irreparable damage.”
Some 36,000 franchise businesses are likely to close by winter without additional federal support, said Matthew Haller, senior vice president for government relations and public affairs at the International Franchise Association in Washington, which represents owners of gyms, salons and other chains. “The situation’s pretty dire,” he said.
Laid-off workers are also under pressure. Ernie Tedeschi, an economist at Evercore ISI, estimates that unemployed Americans will begin to exhaust the savings they were able to amass from previous rounds of aid as early as this month, leaving them struggling to buy food or pay rent. Without another aid package, the economy will regain four million fewer jobs through the end of next year than it would have if lawmakers had struck a deal, he said in a research note on Wednesday.
The gridlock in Washington is a reversal from the spring, when fear of an imminent economic collapse led Congress to vote overwhelmingly to approve trillions of dollars in aid to households and businesses. The effort was largely successful: Households began spending again, companies began bringing back workers, and a predicted tidal wave of evictions and foreclosures mostly failed to materialize. The unemployment rate, which reached nearly 15 percent in April, fell to 7.9 percent in September.
But most of the aid programs expired over the summer, and in recent weeks economic gains have faltered. Economists say the loss of momentum is likely to grow worse if more aid doesn’t arrive soon. Federal Reserve officials had been expecting another aid package to arrive when they released their economic projections in September, minutes released on Wednesday showed, and warned that “absent a new package, growth could decelerate at a faster-than-expected pace in the fourth quarter.”
While Republicans, Democrats and the White House have sparred over the scope and size of another package, many economists say the amount is less important than how fast and where the money is deployed.
“When do you need money? The answer is, two months ago,” said Jason Furman, who ran the White House Council of Economic Advisers under President Barack Obama.
Unemployment benefits are a top priority for many economists. The $600 a week in extra benefits that kept many households afloat in the spring expired at the end of July, leaving millions of families struggling to get by on only their regular state unemployment benefits, which often total just a few hundred dollars a week. Millions more people are depending on temporary programs that extend aid to those who don’t qualify for regular state benefits or whose benefits have expired. Those programs lapse at the end of the year.
Research has found that unemployment benefits are among the most effective forms of economic stimulus, because jobless workers are likely to spend the money rather than save it. But many economists said that is a secondary reason for extending benefits; the primary reason is to keep families from slipping into poverty or losing their homes.
“My principal reason for wanting the $600 to continue is not as a macroeconomist, it’s because I’m worried about people,” said Jay Shambaugh, a George Washington University economist who served as an adviser to Mr. Obama. “I think we can afford it and not have people starve.”
Senate Republicans have made clear they will not support restoring the full $600 supplement, which many of them opposed from the start. But even progressive economists say any amount is better than nothing.
“I don’t think it’s worth dying on the hill of ‘should it be $600 or $400,’” said Claudia Sahm, a former Federal Reserve economist who has been one of the most vocal proponents for federal spending since the start of the pandemic.
The consequences of failing to provide help to jobless families would be particularly dire for low-income families, many of them Black and Hispanic. Those workers were among the last to make gains after the previous recession, and have lost the most this time around.
“The gains that have been built up over time are fragile,” said Raghuram G. Rajan, a former chief economist of the International Monetary Fund who is now a professor at the University of Chicago. “You have a whole bunch of people who’ve struggled their way into a semblance of normalcy by 2019, and then you have this massive crisis. If we don’t try to protect those gains, it will take a longer time, a really long time to come back.”
Businesses are also in need of more help, particularly industries that have yet to return to full capacity as the virus persists. Major airlines began laying off workers this month after Congress failed to extend an earlier aid package. A hospitality-industry lobbying group last month released a report estimating that 1.6 million hotel workers could lose their jobs and 38,000 hotels could close without federal help. Restaurants are in similarly dire straits, especially as colder weather begins to shut down outdoor dining in much of the country.
With the pandemic lingering longer than many had expected, economists said businesses are facing new challenges that will require a different approach from what Congress previously funded. For instance, any new program probably needs to provide more flexibility to businesses, allowing them to make adjustments — including laying off workers — to survive a crisis that could stretch on another year or more.
Steven Hamilton, a George Washington University economist, said lawmakers should “radically expand” a tax credit that offsets the costs of retaining employees, along with additional aid for fixed costs like rent. He said any delay in help, especially until next year, “would be catastrophic.”
“It is much faster to close a business than to start one,” he said. “It took us a decade to regain the businesses lost in just three years during the Great Recession. The labor market seems to have hit a ceiling in recent months, and a big part of that is that many workers’ former employers no longer exist.”
And while companies have begun to bring back furloughed workers, the U.S. economy lost 216,000 government jobs in September, according to the Labor Department, with most of those cuts coming at the state and local level. Forecasters warn that much deeper cuts are coming as state and local governments reel from lost tax revenue.
Economists say that the failure to help state and local governments was one of the biggest policy mistakes of the last recession. Back then, state and local governments cut thousands of jobs, slashed spending and raised taxes, offsetting federal efforts to prop up the economy through deficit spending and tax cuts.
Economists have been arguing since the spring that insufficient aid for state and local governments was a significant flaw in the various relief packages.
“We’re in for a sizable reduction in economic activity coming from state governments if we don’t do anything,” said Wendy Edelberg, who runs the Hamilton Project, an economic-policy arm of the Brookings Institution. “It’s just a terrible thought that we didn’t learn that lesson post-2008, that state budgets are incredibly important to the aggregate economy.”
Europe's Economy Risks New Contraction From Virus Curbs – BNN
(Bloomberg) — The resurgence of the coronavirus has knocked Europe’s economic recovery back a step and raised the possibility of another contraction.
IHS Markit’s monthly measure of business activity fell to a four-month low of 49.4 in October from 50.4 in September. Within the report is a clear, divergent trend of manufacturing strength being offset by damage to services from the second wave of the pandemic.
New government curbs as well as consumer fears of the virus are driving the two-speed economy. In Paris and eight other major French cities, authorities introduced a curfew this month that’s hitting restaurants and bars particularly hard. In Germany, a Bavarian district imposed a two-week lockdown after infections climbed above a rate that triggers an automatic tightening of restrictions.
While the weakness is largely limited to services, the fallout on jobs and spillovers to the rest of the economy will worry policy makers. The deteriorating outlook strengthens the case for the European Central Bank to pump more monetary stimulus into the economy, and governments may have to extend expensive aid programs.
IHS Markit warned that the euro-area economy could shrink again this quarter. Its report said employment fell again in October, confidence deteriorated and orders declined.
“While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus and for national governments to help cushion the impact of Covid-19 containment measures,” said Chris Williamson, chief business economist at IHS Markit.
©2020 Bloomberg L.P.
ECB Seen Preparing More Aid as Virus Spread Derails Economy – Yahoo Canada Finance
As renewed scrutiny grows around the death of 15-year-old Wally Rich, Newfoundland and Labrador’s child and youth advocate says the situation is a tragedy, and her office’s ability to investigate is held up in bureaucratic limbo.Rich, from Natuashish, died by suicide while at a group home in Labrador in May, nearly three years after the provincial government promised an inquiry into Innu children in care.Jackie Lake Kavanagh, the child and youth advocate, said any ability to do her own investigation into Rich’s death is on hold, as by law she cannot look at or investigate a matter until the Child Death Review Committee has completed its own review. She has yet to receive a file from that committee, she said, and added the awaited inquiry is also standing in the way.She wants to see if Rich’s case will be included in that inquiry, which will determine whether she can proceed with her own investigation. That’s one more reason she feels the years-long delay for the inquiry is unacceptable.”When you look at the sense of urgency, this should have been happening already, and Innu children are struggling in the system and this is a prime example of it,” she said. Kavanagh said it’s inexplicable to her how the province hasn’t moved ahead with the inquiry yet. “This inquiry was committed more than three years ago, and if you look back beyond that, the Innu people were demanding and asking for that inquiry before it was committed. So, it goes back much more than three years,” said Jackie Lake Kavanagh. “I think the piece that they want is, they want answers, they want accountability and they want reconciliation, and they’ve said that. And I think those are very reasonable requests to make.”Troubling statisticsAs of March, there were 165 Innu children in provincial care. It’s clear to Kavanagh that Rich is not the only one who encountered problems with the system.”It’s not unique which is really, really tragic,” she told CBC Radio’s St John’s Morning Show.Her office is seeing troubling statistics in the province.Legislative changes to the Child and Youth Advocate Act in 2018 meant her office has to be notified if a child is critically injured or dies while in care and custody, or within the last 12 months of care and custody.”Between April 1, 2019 and the end of September this year, we have had 75 reports, and 60 per cent of those have been around suicide attempts or suicide ideation,” Kavanagh said. “That’s really, really significant in this little province of ours.”Kavanagh said Indigenous children and their communities have been marginalized for a long time, and the impact of intergenerational trauma is working its way through younger generations. She said Rich’s death is heartbreaking, and it’s part of larger, systemic issues that are pervasive across Canada.”When you look at the situation across the country, in fact, between 10- and 24-year-olds suicide is the second leading cause of death, and that is really, really troubling,” Kavanagh said.”I think all of us should be left with a whole sense of unrest about that.”Kavanagh said a lot more work needs to be done, particularly a plan dedicated to youth and children in the province’s suicide prevention strategy as well as services dedicated to Indigenous children based in their culture. Where to get help:Canada Suicide Prevention Service: 1-833-456-4566 (phone) | 45645 (text) | http://www.crisisservicescanada.ca/ (chat)In Quebec (French): Association québécoise de prévention du suicide: 1-866-APPELLE (1-866-277-3553)Kids Help Phone: 1-800-668-6868 (phone), Live Chat counselling at www.kidshelpphone.caCanadian Association for Suicide Prevention: Find a 24-hour crisisRead more articles from CBC Newfoundland and Labrador
What would delayed election results mean for the economy? – Marketplace
It’s likely we won’t know who won the presidency on Election Day this year, and some people are concerned about the possibility of a contested election. Last week, Fitch Ratings wrote in a report that it will be watching the election for “any departure” from the U.S.’s history of accepting election results and the orderly transition of power. If there’s any departure from this norm, it could affect the country’s AAA credit rating, which influences the interest rate the U.S. pays on its national debt.
All the uncertainty surrounding this presidential election could affect the economy in other ways, too. “Marketplace” host Kai Ryssdal talked with Wendy Edelberg, a senior fellow at the Brookings Institution and director of its Hamilton Project, about what might happen. The following is an edited transcript of their conversation.
Kai Ryssdal: So broad brush, lay it out for me. We have been told that we’re probably not going to know who won the election on election night. What do you think that means writ large for the American economy in the next two months?
Wendy Edelberg: I suspect it means that it will take too long to get the kind of fiscal support that we need to support this really fragile recovery. And that frustrates me because doing it now is too late. Doing it a month from now is much too late.
Ryssdal: So I will stipulate that that is a thing that could or will happen on election night or afterward. What happens if it becomes contested and challenged and acrimonious?
Edelberg: So right now, measures that tell us how uncertain things are for businesses, for investors, for households, those measures are through the roof. And uncertainty is generally really bad for economic activity. It prevents firms from putting investments in place and expanding and putting in hiring decisions. And it prevents households from making decisions about the future. And we’re just going to create one more really significant headwind if November and December, for that matter, is that much more an environment of uncertainty, layered on top of the immense uncertainty we have because of the pandemic.
Ryssdal: I say on this program all the time, and regular listeners know this, the stock market is not the economy. I do wonder though, beyond the real economy measures that you have laid out in that answer, what do you imagine stock markets will do? Just because a lot of people look at that as an indicator.
Edelberg: So you’re absolutely right. The stock market is not the economy and the stock market is giving us all sorts of incorrect signals right now. And it wouldn’t really surprise me if it continued to give us really incorrect signals. As much as uncertainty and a contested election would be really bad for small businesses, for individual households, it may well be good for some of the large firms that are driving the stock market gains. That’s really hard to know. And I’m also guessing that people who hold equities are pretty aware of the issues that you and I just talked about. And so my thought is that that’s mostly baked into the stock market. And so those investors are expecting things to be pretty chaotic for a couple of weeks after the election, and I would expect things to basically move sideways, which is to say the flip side, that if we get a clear outcome, and uncertainty is largely resolved very quickly, yeah, I can imagine that being fabulous for the stock market.
Ryssdal: Huh. Let me point out that if he loses, President Trump will still be president for two and a half months, right, Election Day to the 20th of January. Contested election aside, challenged election aside, random tweets aside, he’s still the president with full executive authority to influence this economy.
Edelberg: So maybe this means that with all of these issues leading up to the election off the table, because that uncertainty is resolved, I don’t know, maybe we can hope, maybe policymakers will then come together and do the right thing. I’ve been asked before, “What would you tell policymakers on January 20th to do to support our economy?” And the first thing I’ll say is get in a time machine and go back six months to support the economy then. So I have grave concerns about policymakers waiting until January to pass the kind of fiscal support that the economy needs right now.
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