The failure of Washington to deliver another big dose of stimulus before the election probably won’t tip the U.S. back into recession, economists say, but the lapse in aid threatens to destroy more businesses, inflict greater pain on millions of unemployed Americans and drag out a recovery.
The most vulnerable are the nearly 11.5 million people who were laid off early in the pandemic and are still out of work, economists say. So far the U.S. has only regained about half of the 22 million-plus jobs lost, and the rebound in hiring has slowed sharply since the summer.
On top of that, 25 million people were reportedly receiving jobless benefits as of the end of September, suggesting the real level of unemployment is significantly higher. What’s worse, many of them are set to lose extended unemployment benefits at the end of December under current law.
Many businesses whose customer traffic has dried up due to government restrictions and fear of the coronavirus are also in a precarious spot.
As many as one-fourth of all small businesses that are still open might be forced to close if they don’t get more help or if the economic recovery falters, estimates chief economist Joe Brusuelas of RSM, an advisory firm for midsized companies.
“We have to decide if we are going to keep them open and the people that work for them afloat,” said Brusuelas, who’s been outspoken about the need for more aid. “Washington should move as quickly as possible to put the biggest stimulus on the table.”
A huge stimulus in the next few weeks seems highly improbable. For almost three months Democrats and Republicans have negotiated on and off to renew extra unemployment benefits and provide a financial lifeline to businesses both big and small that have been most harmed by the coronavirus pandemic. Those benefits expired in July.
Yet what once seemed like a foregone conclusion on Wall Street and in Washington — another big stimulus — has turned into a contest of political wills and the search for partisan advantage.
With less than two weeks to go before the election, the two parties are still wrangling. President Donald Trump wants a deal now to help his re-election chances, but the Democratic-controlled House is unlikely to give him one unless he makes more concessions. They are widely expected to pass an even larger stimulus in January if Joe Biden wins the presidency and Democrats recapture the Senate.
The Republican-led Senate, for its part, has been reluctant to support another huge stimulus. A scaled-back $500 billion proposal offered by Republicans failed in the Senate on Wednesday amid Democratic objections that it was not enough.
“This is no longer about economics or policy,” Brusuelas said. “This is about politics.”
Even in the unlikely case the two parties manage to strike a deal before the Nov. 3 election, it’s unlikely to be as large as many economists say is needed. The compromise now under consideration would likely total less than $2 trillion, a bit less than the emergency-rescue package Congress passed last spring.
“ “This is no longer about economics or policy. This is about politics.” ”
Something between now and then, economists say, would still be better than nothing. Waiting until January promises to put more companies out of business, spawn more layoffs and magnify the hardship for struggling families whose breadwinners have lost their income.
“A dollar tomorrow is not the same as a dollar today, especially for the people who need that dollar to pay rent, get health care or put food on the table,” said chief U.S. economist Gregory Daco of Oxford Economics.
Millions of jobs at stake
“ “A dollar tomorrow is not the same as a dollar today, especially for the people who need that dollar to pay rent, get health care or put food on the table.” ”
The gridlock over the past few months marks a sharp turnaround compared to early in the crisis, when Washington acted swiftly. Lawmakers passed a record $2 trillion stimulus in the spring that temporarily boosted unemployment benefits by $600 a week and extended forgivable loans to businesses that kept employees on the payroll.
Sharp partisan divisions reemerged over the summer after economy reopened and roared back to life, spurring a debate over how much, or even whether, more government aid was needed. The result: Most benefits for businesses and unemployed workers expired at the end of July.
The bulging ranks of the unemployed have had to get by on far less after the loss of a $600 federal stipend. For many, the extra money represented about two-thirds of their weekly income after they lost their jobs. Most families used the windfall to pay the rent and other expenses, pocketing the rest for an emergency. The temporary boom in incomes and spending helped turbocharge the recovery.
Even though the lapse in benefits didn’t cause U.S. growth to stumble, as widely predicted, many economists now warn the lack of another stimulus is starting to restrain the recovery.
A raft of large companies such as Disney DIS,
“The economy is going to take a hit,” said Aneta Markowska, chief economist at Jefferies Group. “It won’t contract, but it is going to weaken.”
Not every economist agrees the economy needs more juice. Some point to the surprisingly sharp increase in retail sales in September, a high savings rate and other measures such as rising consumer confidence that indicate the recovery still has plenty of steam.
What worries economists such as Daco and Markowska is that government inaction has removed some of the fuel from the fire, so to speak, and also made the U.S. more vulnerable to future shocks such as another major coronavirus outbreak.
The COVID-19 caseload has grown again in the U.S. and abroad in the past month with the winter flu season fast approaching. Europe has instituted stricter rules again and some U.S. states are doing the same.
Think of more government stimulus as an insurance policy, Daco said. It would help millions of people in need, bridge the gap between now and the arrival of a vaccine, and help inoculate the economy from the coronavirus.
“It’s not a do-or-die situation today, but it risks becoming one,” he said. “That’s why the timing of the aid is essential.”
Markowska said additional stimulus would speed up the recovery in 2021 and allow workers to return to their jobs more quickly. The U.S. economy would likely grow closer to 5.5% next year with more federal aid, her firm has estimated, but perhaps just 3.5% on its own.
It might not sound like much, but those extra two percentage points of growth could represent several million jobs that don’t exist now.
The danger of persistently high and long-term unemployment, Markowska said, is that it threatens permanent labor-market “scarring” — the term economists use to refer to unemployed workers whose skills have eroded so much that no company wants to hire them.
The lack of stimulus could raise the odds of people dropping out of the labor force, in some cases never to return, economists say. That also has social and other costs in the long run — costs that could make it much harder for the economy to return to its precrisis trend.