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New Stimulus Tides Over US Economy Without Being a Cure-All – BNN



(Bloomberg) — The $900 billion stimulus package agreed to by U.S. lawmakers over the weekend could keep the economy from contracting again, but pandemic-related risks remain if activity doesn’t start to bounce back next year.

The fiscal relief package includes $600 one-time checks to individuals, more funding for the Paycheck Protection Program and a 10-week extension of unemployment benefits, with each week supplemented by a $300 payment. Those measures — which Congress may approve Monday — could help prop up a U.S. economy that’s been deteriorating in recent weeks.

The relief is less than what Democratic Party lawmakers proposed, and President-elect Joe Biden’s administration will likely seek additional stimulus when he takes office in January.

Initial jobless claims are at a three-month high, November’s payroll gains were well below expectations and retail sales declined in both October and November. The passage of additional fiscal support, combined with increasing numbers of Americans being vaccinated, means the economic recovery should be off and running by mid-2021, Mark Zandi, chief economist at Moody’s Analytics, said in a note.

The stimulus deal “has come just in time to forestall a double-dip recession,” Zandi said. The package will add approximately 1.5 percentage points to annualized real GDP growth in the first quarter of 2021, and about 2.5 percentage points to next year’s growth, he said.

Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., said on Bloomberg Television that the relief package “should be very helpful for the economy,” and estimated that it could boost GDP by as much as 3% over time.

Still, many of the protections expire in the first quarter, meaning additional relief could be needed by March. While the Covid-19 vaccine rollout is expected to pick up by spring, the sectors most impacted by the pandemic are unlikely to approach full reopening until later in the year, Andrew Husby, economist at Bloomberg Economics, said in a note.

What Bloomberg’s Economists Say…

“The package directs aid where it is needed most. Along with a quicker-than-expected start to vaccine rollout, this is a key reason our 2021 outlook has been unchanged (3.5% expansion in gross domestic product for 2021), despite the package being slightly smaller than the baseline we have carried since the summer.”

— Andrew Husby, economist

For the full note, click here

Lawmakers had been struggling for months to reach a deal, and for many Americans the new stimulus package didn’t come soon enough. The number of Americans out of work for the long term has more than doubled since August, and an increasing number of businesses are losing revenue or even closing permanently.

“This stimulus really is a stopgap, it’s come really late and it’s a little lame, honestly — it’s not as big as I would have liked,” Megan Greene, a senior fellow at Harvard’s Kennedy School of Government, said on Bloomberg TV. “If we’d waited until the new administration had come into power, particularly if the Republicans control the Senate, then it probably would have been even smaller, so I think this was probably the best that we realistically could have hoped for.”

The rescue package doesn’t include aid to state and local governments, many of which are facing huge budget shortfalls. Without funding, they’ll be forced to cut jobs, programs and services at an inopportune time for the broader economy, Zandi said.

The passage of new fiscal relief will largely depend on the outcome of the Georgia runoffs, which will determine which party controls the Senate, said Jennifer Lee, senior economist at BMO Capital Markets.

Ultimately, the most important driver of the recovery will be increased economic activity, which is largely dependent on an effective vaccine, Lee said. While the stimulus package “kicks the can down the road” until March, there could still be challenges this winter, she said.

“There are going to be tons of negative headlines in the first quarter — seasonally it’s weak anyway — but because of these lockdowns you’re going to see further weakness,” she said.

©2020 Bloomberg L.P.

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Biden's rescue plan will give U.S. economy significant boost: Reuters poll – The Telegram



By Indradip Ghosh and Richa Rebello

BENGALURU (Reuters) – U.S. President Joe Biden’s proposed fiscal package will boost the coronavirus-hit economy significantly, according to a majority of economists in a Reuters poll, and they expect it to return to its pre-COVID-19 size within a year.

Biden has outlined a $1.9 trillion stimulus package proposal to jump-start the world’s largest economy, which has been at the epicenter of the COVID-19 pandemic having lost over 400,000 lives, fueling optimism and sending Wall Street stocks to record highs on Thursday.

Hopes for an upswing in U.S. economic growth, helped by the huge stimulus plan, was reflected in the Jan. 19-22 Reuters poll of more 100 economists.

In response to an additional question, over 90%, or 42 of 46 economists, said the planned fiscal stimulus would boost the economy significantly.

“There are crosswinds to begin 2021 as fiscal stimulus helps to offset the virus and targeted lockdowns. The vaccine rollout will neutralize the latter over the course of the year,” said Michelle Meyer, U.S. economist at Bank of America Securities.

“And upside risks to our…growth forecast are building if the Democrat-controlled government can pass additional stimulus. The high level of virus cases is extremely disheartening but the more that the virus weighs on growth, the more likely that stimulus will be passed.”

For a Reuters poll graphic on the U.S. economic outlook:

The U.S. economy, which recovered at an annualized pace of 33.4% in the third quarter last year from a record slump of 31.4% in the second, grew 4.4% in the final three months of the year, the poll suggested.

Growth was expected to slow to 2.3% in the current quarter – marking the weakest prediction for the period since a poll in February 2020 – amid renewed restrictions.

But it was then expected to accelerate to 4.3%, 5.1%, 4.0% in the subsequent three quarters, a solid upgrade from 3.8%, 3.9% and 3.4% predicted for those periods last month.

On an annual basis, the economy – after likely contracting 3.5% last year – was expected to grow 4.0% this year and 3.3% in 2022, an upgrade from last month.

For a graphic on Reuters Poll – U.S. economy and Fed monetary policy – January 2021:

Nearly 90%, or 49 of 56 economists, who expressed a view said that the U.S. economy would reach its pre-COVID-19 levels within a year, including 16 who expected it to do so within six months.

“Even without the stimulus package, we had already thought the economy would get back to pre-COVID levels by the middle of this year,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets.

“With the new stimulus package there will be more direct money in people’s pockets, easily boosting the economy, provided a vaccine rollout progresses in a constructive manner.”

But unemployment was not predicted to fall below its pre-pandemic levels of around 3.5% until 2024 at least.

When asked what was more likely for inflation this year, only one said it would ease. The other 40 economists were almost evenly split between “a significant pickup” and price pressures remaining “about the same as last year.”

Still, the core Personal Consumption Expenditures (PCE) price index – the Federal Reserve’s preferred inflation gauge – was forecast to average below the target of 2% on an annual basis until 2024 at least, prompting the central bank to keep interest rates unchanged near zero over the forecast horizon.

“I don’t think it will be an increase in underlying (inflation) trend, it is sort of a rebound in prices that have been depressed during the pandemic,” said Scott Brown, chief economist at Raymond James.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Indradip Ghosh and Richa Rebello; Additional reporting by Manjul Paul; Polling by Mumal Rathore; Editing by Rahul Karunakar and Hugh Lawson)

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How Biden's Pandemic Plan Could Affect The Economy – NPR



President Biden has outlined an aggressive plan to gain control over the coronavirus pandemic, which continues to weigh heavily on the U.S. economy.

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Renewed lockdown sends UK economy tumbling again: PMI – Cape Breton Post



By Andy Bruce

LONDON (Reuters) – Britain’s relapse into a third national COVID-19 lockdown has sparked the sharpest drop in business activity since May, with services companies hit hardest, a survey showed on Friday.

A preliminary “flash” IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI) fell to 40.6 in January, down from 50.4 in December.

The drop below the 50 threshold for growth was bigger than any economist forecast in a Reuters poll, which had pointed to a reading of 45.5.

In addition to the latest lockdown, data company IHS Markit said Britain’s post-Brexit shift to a more bureaucratic trading arrangement with the European Union had contributed to the decline.

“Services have once again been especially hard hit, but manufacturing has seen growth almost stall, blamed on a cocktail of COVID-19 and Brexit, which has led to increasingly widespread supply delays, rising costs and falling exports,” Chris Williamson, chief business economist at IHS Markit, said.

The pace of job losses accelerated, after easing in December.

Economists polled by Reuters last week forecast a 1.4% fall in output for the first quarter. [ECILT/GB]

The official death toll from COVID-19 in the United Kingdom is nearing 100,000 and is currently the highest in Europe and the fifth worst in the world after the United States, Brazil, India and Mexico.

Britain is rolling out vaccines faster than many of its peers, which should bode for a swift economic rebound later this year.

Thursday’s survey showed companies were upbeat about their business prospects for the year ahead, with optimism hitting a 6-1/2-year high.

The PMI for the services industry, which accounts for the vast bulk of Britain’s private sector economy, fell to 38.8 in January from 49.4 in December, its lowest level since May and marking a third month of contraction.

Factories fared much better, despite fading growth in output and a renewed decline in order books. The manufacturing PMI fell to 52.9 in January from 57.5 in December, remaining above the 50 dividing line for growth.

(Editing by Toby Chopra)

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