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Donald Trump has signed four presidential orders aimed at helping Americans cope with the economic fallout from the pandemic, following the collapse in talks with Democrats over a Congressional rescue package.
The US president signed one memorandum that would partly renew unemployment benefits included in a previous stimulus package which expired last month. He also ordered a suspension of the payroll tax — something he had wanted to do long before the recent talks with Congress.
Mr Trump had threatened to take action after Treasury secretary Steven Mnuchin and White House chief of staff Mark Meadows failed to reach agreement with Nancy Pelosi, the Democratic House speaker, and Chuck Schumer, the top Senate Democrat, over the contours of a rescue package.
“We have repeatedly stated our willingness to immediately sign legislation,” Mr Trump said at his golf resort in Bedminster, New Jersey. “Nancy Pelosi and Chuck Schumer have chosen to hold this vital assistance hostage.”
The White House and Democrats have been at loggerheads for weeks over how to help the millions of Americans who have lost their jobs because of the pandemic, as the unemployment rate remains in double digits.
In a statement, Ms Pelosi and Mr Schumer slammed Mr Trump for his “unworkable” measures as Covid-19 was “moving through our country like a runaway freight train and the economy is quickly running out of steam”.
“The only solution to crush the virus and protect working families is to pass a comprehensive bill that is equal to the historic health and economic catastrophe facing our country,” the Democratic leaders said.
Many economists are concerned that the economic rebound will suffer a setback following the expiration of $600-a-week jobless benefits that were a crucial component of the $2.2tn Cares Act passed at the end of March.
Mr Trump said his action would authorise the provision of $400 a week to unemployed Americans, with 75 per cent of the funding coming from the federal government and the remainder coming from the states. But many states are financially struggling as the economic crisis hits their tax base.
In defending his decision to lower the benefit by $200, Mr Trump said the previous $600 weekly payments were a “disincentive” to returning to work.
Mr Trump said the payroll tax suspension would apply to those who earned less than $100,000 and would remain in place for the year. He said he would try to enact permanent payroll tax cuts if he won re-election.
“This will mean bigger paychecks for working families as we race to produce a vaccine and eradicate the China virus,” Mr Trump said.
Mr Trump said he wanted to reduce both the income tax rate and the capital gains rate — although most political experts believe it would be impossible to make permanent changes in the tax code in an election year.
Democrats have been pushing for a $3.4tn package, similar to the Heroes Act they passed in May. Republicans want to spend closer to $1tn, and accuse their rivals of trying to bail out Democratic-run cities and states.
Although Mr Trump has refused to consider a package anywhere near the size advocated by the Democrats, he wants to put something in place to reduce unemployment as he campaigns for re-election against Joe Biden.
Mr Trump has accused the Democrats of trying to block efforts to pass a rescue package in a bid to help his opponent. The labour department on Friday said the economy added 1.8m jobs in July, a sharp deceleration from the 4.8m created in June, while the unemployment rate was 10.2 per cent.
The final two orders would extend measures making it harder for landlords to evict tenants struggling to pay their rent or mortgages, and easing the burden on students with education-related debt.
At the start of the year, Mr Trump had been banking on a robust economy giving him a strong tailwind heading into the election in November. But the pandemic has devastated the economy, and his handling of the crisis has helped Mr Biden move ahead in national polls and critical swing states.
Mr Trump is also concerned that the recent spike in coronavirus cases in the American south and west will provide a fresh drag on the economy and prevent the emergence of the V-shaped recovery that he had argued would occur in the third quarter of the year just before the election.
The orders came as the US edged closer to becoming the first country to confirm 5m coronavirus cases, after an additional 53,923 people tested positive over the past day, according to Covid Tracking Project data.
While Mr Trump suspended the payroll tax — used to fund programmes such as social security — it was unclear if he would face a legal challenge.
Republicans are wary about tampering with the tax, although some have said the president was entitled to take the action. But Chuck Grassley, a veteran Iowa Republican lawmaker who chairs the Senate finance committee, this week questioned whether suspending the tax was legal.
Mr Biden warned voters that Mr Trump was threatening the future of social security with his payroll tax proposal, while castigating the president’s plan.
“Instead of staying in Washington and working with Republicans and Democrats to reach a bipartisan deal, President Trump is at his golf club in New Jersey signing a series of dubious executive orders,” Mr Biden said.
Mr Trump may face legal obstacles over his effort to use previously appropriated money to pay for some of the other measures. He also rejected suggestions that states may be unable to pay a share of the cost.
“They have the money,” he said, before adding, “If they don’t, they don’t.”
Douglas Holtz-Eakin, a former director of the non-partisan Congressional Budget Office, said Mr Trump had a reasonable amount of authority to move money around in federal accounts. But he said the complication was that jobless benefit programmes were all run through individual states.
“He can’t make this happen unless the states say they want it to happen,” said Mr Holtz-Eakin, president of the American Action Forum.
Mr Holtz-Eakin said the move was more likely a political ploy to help him argue to people ahead of the election that he wanted to provide benefits, but was blocked by governors. But he added that Congress would almost certainly have to reach a deal despite the current impasse in negotiations.
The US Chamber of Commerce responded to the move by saying there was “no alternative to Congress legislating and no excuse for their inaction”.
It’s seen the population swell by 30 per cent since 2000 (from 19 million to roughly 25 million).
With international borders closed, that stream of growth has shut. Perhaps for years.
“Population growth is going to be very sluggish. This year, it’ll be negative because of all the temporary migrants who have left,” Parkinson warned.
Participation is next. That’s also taken a hit.
Since January, the size of the official labour force has declined by 374,000 people.
The participation rate has dropped from 66.1 per cent to 64 per cent. The number of people classified as “not in the labour force” has grown by 533,500.
It wouldn’t be surprising if those numbers get worse.
Parkinson said the trend was for female participation to keep rising in coming years, but it would have a smaller positive impact overall.
“So those two things together [population and participation] — labour utilisation — we’ve known for a long time will not contribute much, if at all, to growth over the next decade,” he said.
“So it really comes down to a productivity story.
“But if you look at our productivity performance over the last decade, it has been running at about a quarter of its long-run average.
“Now, if we want the same standard of living [as pre-COVID] … we would have to almost double our productivity growth rate.”
It’s a sobering analysis.
Can Australia’s leaders manage workforce participation?
But think about the assumption embedded in that 3Ps framework — it takes for granted that we can’t do much directly about participation.
Parkinson laments how it took a decade for the unemployment rate, after the 90s recession, to fall from 10 per cent to 5 per cent naturally.
He fears the same thing or worse could happen this time around, with the associated social destruction.
But it begs the question: why is participation out of the hands of policymakers?
There’s a growing number of people who say it isn’t.
Professor Bill Mitchell of Newcastle University, who’s a leading proponent of an economic movement called Modern Monetary Theory, says the Federal Government ought to introduce a federally funded program that provided a job for everyone who is willing and able to work.
President Clinton strategist James Carville was fond of saying that when it came to what matters most in elections, “it’s the economy, stupid.” In his reelection bid, President Trump has to hope that Carville’s adage is not always true. Or at least he has to hope that on Election Day American voters will not ask themselves whether they were economically better off today than they were four years ago. Rather, he must hope that they will ask themselves whether they were better off today than they were six months ago at the pandemic’s economic nadir.
Trump never tires of spinning the narrative that until it was struck by the COVID-19 pandemic, the economy was stronger than ever thanks to his efforts at deregulation, his large tax cut and his “America First” trade policy.
Never mind that in his first three years in office, the economy grew at a rate not meaningfully faster than it did under President Obama. Never mind as well that, even before the pandemic, his protectionist trade policies cast a dark cloud over the global economy, while his large unfunded tax cut at a time of record-low unemployment seriously compromised the country’s public finances.
It would be a gross understatement to say that Trump has mishandled the coronavirus pandemic, which has resulted in the country’s worst economic crisis in the past 90 years. He did so by ignoring his health experts’ warnings about the virus’s spread and by heeding instead his economic advisors’ siren call for a premature lifting of the lockdown to revitalize the economy.
Still stuck in the first wave of the pandemic, the number of daily COVID-19 infections has increased from its earlier April peak of around 35,000 to its present level of around 60,000. As a result, with barely 4 percent of the world’s population, the U.S. has managed to account for around 25 percent of the world’s total COVID-19 infections and fatalities.
The pandemic’s resurgence in the U.S., coupled with dire warnings from health experts about a likely second wave of the pandemic this fall, now seem to be halting the economy in its tracks from the very strong bounce it was having from its second quarter collapse. As Federal Reserve Chairman Jerome Powellrecently noted, high frequency economic data on consumer demand as well as disappointing employment figures are suggesting that the economy might already be plateauing at an unacceptably high unemployment rate.
It is not just that large Southern states now appear to be rolling back at least in part the earlier lifting of their lockdowns. Nor is it only that schools and colleges are increasingly pushing back their scheduled reopening dates, which could complicate Americans returning to the workplace. Rather, it is also that individuals are adjusting their behavior in a manner that is putting renewed pressure on those very sectors of the economy that have been hardest hit by the pandemic. With the pandemic raging, the American public once again appears to be increasingly reluctant to travel, frequent restaurants or engage in indoor shopping.
A stuttering economy now would heighten the prospect that the U.S. will soon face a massive wave of bankruptcies. It will do so as high unemployment puts unbearable strain on household finances and as additional stress is placed on those companies in the travel, restaurant, retail and entertainment space. It will also do so as the real commercial property sector is challenged by excess office space and by vacated shopping malls as people increasingly choose to work remotely and to shop online. That could very well keep unemployment in double digits on Election Day.
Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.
Neel Kashkari, president of the Minneapolis Federal Reserve, in an interview on February 17, 2016.
David Orrell | CNBC
The U.S. economy needs an even more stringent shutdown than the last time if it’s going to defeat the coronavirus, Minneapolis Federal Reserve President Neel Kashkari said.
In a Friday New York Times op-ed he authored with Michael T. Osterholm, a professor and director of the Center for Infectious Disease Research and Policy at the University of Minnesota, Kashkari argues that the government should issue a shelter-in-place order “for everyone but the truly essential workers” for up to six weeks.
March’s lockdown, issued as the coronavirus became a pandemic, was not sufficiently stringent and has led to the U.S. lagging other stricter nations when it has come to containing Covid-19, they said. The result “could make what we have experienced so far seem like just a warm-up to a greater catastrophe.”
“To be effective, the lockdown has to be as comprehensive and strict as possible,” Kashkari and Osterholm wrote. “If we aren’t willing to take this action, millions more cases with many more deaths are likely before a vaccine might be available. In addition, the economic recovery will be much slower, with far more business failures and high unemployment for the next year or two.”
During the initial lockdown, the shuttering of American businesses led to the loss of at least 20 million jobs, only about half of which have been recovered during the restart. Congress stepped in with rescue funding that has swelled the national debt by $3 trillion to $26.5 trillion, and Kashkari’s Fed also has expanded its balance sheet by nearly $3 trillion by lending and providing liquidity through various vehicles.
The containment measures also crushed broader economic activity, sending GDP down 32.9% in the second quarter as calculated over a full-year’s period.
Kashkari and Osterholm said that the efforts still weren’t strict enough as the U.S. is still seeing 17 new cases per 100,000 people a day, with more than 160,000 total deaths attributed to the virus.
“Simply, we gave up on our lockdown efforts to control virus transmission well before the virus was under control,” they wrote.
Despite the economic damage done during the initial shutdown, including layoffs, thousands of failed businesses and mental health and education issues, the authors say another lockdown would pave the way for a stronger recovery.
“If we do this aggressively, the testing and tracing capacity we’ve built will support reopening the economy as other countries have done, allow children to go back to school and citizens to vote in person in November. All of this will lead to a stronger, faster economic recovery, moving people from unemployment to work,” they said.
“There is no trade-off between health and the economy,” they added. “Both require aggressively getting control of the virus. History will judge us harshly if we miss this life- and economy-saving opportunity to get it right this time.”
Many investors are familiar with the VIX, or volatility index, that measures how much investors expect to see the S&P 500 index fluctuate.
But far fewer know even a little about a measure of volatility in economic growth called the Economic VIX Index, created by Jim Paulsen, chief investment strategist at investment-management and research firm Leuthold Group. The Economic VIX is important now because its history over the decades since World War II shows that stocks do best when economic volatility in the U.S. is at its…
When the additional $600 weekly unemployment benefit expired at the end of July, Charissa Ward, a furloughed Disney server in Florida, knew she wouldn’t be able to cover all of her expenses.
Now, she will receive only the Florida state benefit, a maximum of $275 per week before taxes and among the lowest in America. Ward has been out of work since mid-March, officially on furlough since April, and doesn’t know when she’ll be able to go back.
The $275 per week “doesn’t pay anything really. I can’t even cover my mortgage payment, let alone food, my car payment, my insurance, basic electric, you know, nothing,” the mother of three told Business Insider. “We’re not talking about going on vacation here, we’re talking about survival.”
Ward is among the 31 million Americans relying on unemployment benefits, a safety net that is getting thinner now that the federal government doesn’t provide any additional money. The typical jobless person is set to receive around $330 each week, an amount varying greatly across the country.
In March, Congress scrambled to design and pass a relief package as sweeping shelter-in-place orders shuttered businesses across the US, kept people at home, and led to millions of Americans losing their jobs. Among its provisions: a $600 weekly federal supplement to state unemployment checks, meant to fully replace the lost earnings of laid-off workers.
That government payout played an enormous role in rescuing a pandemic-stricken economy from collapse. Experts credit the benefit with backstopping income loss and boosting consumer spending in a recession, along with providing people enough money to buy groceries and pay rent and other monthly bills. Some said it helped keep poverty from rising.
“It is so clear from the data we have in hand and from the research that’s being done, that $600 [helped] prop up the entire economy,” Claudia Sahm, the director of macroeconomic policy at the Washington Center for Equitable Growth, recently told Business Insider.
In addition, retail spending was strong in May, when it jumped a record 17.7%. That strength continued in June, when retail sales increased 7.5%.
That continued strength is “a good sign that emergency unemployment insurance bore a lot of the responsibility for those numbers,” Ernie Tedeschi, an economist at Evercore ISI, told Business Insider.
There’s also evidence in high-frequency data that suggests the additional UI benefit lifted consumer spending and the US economy. Data from the Harvard-based research group Opportunity Insights shows that spending for low-income households has nearly recovered to pre-pandemic levels, down only 2% from February.
On the flip side, high-income spending is still down 10% from before the pandemic.
“Consumption among low-income households has been so strong despite the fact that low-income households have been disproportionately hit by the pandemic,” Tedeschi said, adding that “there’s circumstantial evidence that our emergency unemployment insurance benefits have done their job to solidify the ground under unemployed workers.”
That spending is important to the overall economic recovery as consumption is roughly 70% of US gross domestic product. Consumer spending also gives strength to the labor market — when people shop, businesses profit more, and in turn, can expand and hire additional workers.
“So much of our economy not falling 60% and falling 33% in the last quarter was this additional infusion into household incomes from the government,” Daniel Alpert, Cornell Law School senior fellow and adjunct professor, told Business Insider. A lack of continued support will “deepen the severity and extend the duration of this crisis,” he said.
The fierce political clash over $600
Republicans and Democrats hold dueling views of the federal benefit’s economic effects. Shortly after it was implemented, many GOP lawmakers opposed its renewal past the summer. In late May, Senate Majority Leader Mitch McConnell reportedly pledged to scrap it.
The GOP is instead pushing to cut the benefit to a lower weekly amount. Many conservatives argued that since the bulked-up payment allowed many workers to earn more from the government than their past jobs, it incentivized them to stay out of the workforce.
“There were definitely businesses that faced hurdles getting their workers to come back. In the longer-term, you never want to be incentivizing people to not work,” Rachel Greszler, an economics expert at the conservative Heritage Foundation, told Business Insider.
She said extending the $600 benefit would have “damaging effects in the longer-term” on employment levels.
Democrats are pushing to revive the payments through January, saying the economy remains weak due to the ongoing pandemic and jobs are scarce. There are currently five unemployed people for every job opening.
“We’re seeing spikes all over the country, unemployment in many places,” Democratic Sen. Ron Wyden of Oregon, a supporter of the $600 extension, told Business Insider in late July. “It’s so bad, companies are laying workers off again.”
Five studies were recently published examining the impact of the $600 supplement on the economy. None found evidence that the benefit is broadly discouraging work among the jobless.
The lapsed federal benefit has been a significant source of friction in stimulus negotiations between congressional Democrats and top White House officials. Talks have stretched on for over two weeks with few signs of progress.
President Donald Trump threatened on Friday to circumvent Congress and take executive action on enhanced unemployment benefits among other priorities if negotiations with Democrats collapse. But it remains unclear what unilateral authority he can draw from as Congress controls spending. It raises the risk of legal challenges that could delay federal aid.
“You’re trying to make a dollar last way longer as if it was $100 dollars”
The timing of the next stimulus bill is important, as millions of Americans are going without the needed extra $600 each week while Congress debates the package.
The uncertainty of the timeline makes it even more difficult for out-of-work Americans to plan for the future.
Tia Ferguson, also a mother of three in Columbus, Ohio, now receives $171 in unemployment insurance each week. Without the extra $600, she’s not sure how long that, her savings, and her husband’s income from a new business will last.
“I’m actually afraid to answer that question because realistically I don’t know,” she told Business Insider. “It’s not enough to even remotely sustain the life we had for 13 years.”
The substitute teacher was furloughed in March when schools shut down, and went 11 weeks before getting her first unemployment check due to delays in the state system, she said. When she finally did start receiving UI, she paid many of her bills including her mortgage, utilities, electric, and gas ahead of time to sustain her family as she doesn’t know when she will be able to return to work.
She’s also cut her budget as much as possible — switching lunch meat for peanut butter at the grocery store, and monitoring her kids’ screentime to keep the electricity bill down.
“You’re trying to make a dollar last way longer as if it was $100 dollars,” she said. Still, she’s doing everything she can to maintain a sense of normalcy for her kids, she said. In addition to the coronavirus pandemic, her family dealt with another tragedy this year — in January, she had a stillborn baby.
“I don’t want it to be the case that during a year that they lost their baby brother, they lost the house that they grew up in either,” said Ferguson.
The rise in hiring in July actually marked a steep dropoff in the labor market’s recovery from a 4.79 million gain in June and a 2.73 million increase in May.
The rising number of Covid-19 cases in many American states last month forced many states to reimpose restrictions on businesses and prevent them from rehiring staff. And American consumers themselves have turned more cautious.
Adding to the litany of problems, Democrats and Republicans in Congress are still at odds on the next rescue package for the economy, including financial aid for millions of workers who have lost their jobs. A temporary $600 federal benefit supplement for the unemployed expired at the end of July. So did an emergency loan program for small businesses and a moratorium on evictions of delinquent renters.
Scott Anderson, chief economist at Bank of the West, worries that future increase in employment won’t be so robust.
“This is likely to be the best jobs report we are likely to see for a while and probably exaggerates the health of the U.S. labor market today,” he said.
The key is how consumers respond.
They’ve lost confidence in the economy over the past month, going out less to shop, eat or travel. If they become even more worried about their jobs or if unemployment benefits aren’t extended, they’re likely to cut spending again as they did early in the pandemic. Retail sales endured a record collapse in March and April.
“Without that gigantic bump in benefits, consumers won’t have the fuel to spend. What is going to happen to consumption?” said Dan North, chief North American economist at credit-insurer Euler Hermes. “I think it’s going to come screeching to a halt.”
Consumer spending accounts for almost 70% of U.S. economic activity. Businesses can’t bring back more workers or increase production if sales flatten out or decline again.
Then it becomes a vicious circle: Less spending leads to fewer jobs, and few people working leads to even less spending and more layoffs.
The first hint of how households have responded will come toward the end of this week with the retail sales report for July. Sales snapped back strongly in the early stage of the recovery, soaring 18.1% in May and rising an additional 7.5% in June.
Retail sales haven’t returned all the way to pre-crisis levels — though they are surprisingly close — but a big slowdown in purchases or, worse, outright decline will send a clear signal that the recovery is flagging.
A solid gain of 3% or more, however, would offer a glint of hope that the U.S. rebound is still underway.
Last-ditch negotiations at the US Congress to forge another stimulus package for the coronavirus-ravaged economy have collapsed in stalemate.
Democrats and Republicans remain at odds over everything from unemployment benefits to financial aid for schools to cash injections for states’ coffers.
The US unemployment rate stands at 10.2%, higher than any level during the 2008 financial crisis.
Jobless benefits have expired, as has a federal moratorium on evictions.
The failure to reach a deal will disappoint tens of millions of unemployed Americans who had been receiving an extra $600 (£450) a week on top of normal unemployment benefits during the pandemic. That payment expired last month and Republicans want to reduce it.
On Friday, House of Representatives Speaker Nancy Pelosi, the most powerful elected Democrat, held a meeting in her Capitol Hill office with Treasury Secretary Steven Mnuchin and White House chief of staff Mark Meadows.
Mrs Pelosi said in a news conference that she was willing to offer a trillion-dollar compromise on a $3.5tn (£2.7tn) stimulus bill passed by her Democratic-controlled chamber but rejected by the Republican-held Senate.
In a surprise news conference on Friday evening from his golf club in Bedminster, New Jersey, where he is spending the weekend, President Trump blamed Democratic congressional leaders for the impasse.
“Nancy Pelosi and Chuck Schumer continue to insist on radical left-wing policies that have nothing to do with the China virus,” he said.
He added: “If Democrats continue to hold this critical relief hostage, I will act under my authority as president to get Americans the relief they need.”
Mr Trump said he may seek to defer the payroll tax, unemployment benefits and student loan interest until the end of the year, as well as extending the eviction moratorium.
The White House has previously suggested the president would take unilateral action through executive order. But it is unclear how much he can change by fiat, given that Congress controls federal spending.
Blame game begins
After weeks of negotiations, during which federal unemployment support for millions of Americans ended and economic numbers indicated the recovery was stalling, congressional Democrats and administration officials were able to offer the nation… nothing.
Both sides agreed that something had to be done to help the unemployed, provide some support to schools that are struggling to cope with the pandemic and protect those facing eviction. The challenge was there was still at least a trillion dollars in daylight between their two plans, and neither side seemed willing to budge.
That suggests that both sides are willing to endure the political and economic fallout of a continued impasse.
Democrats may believe that Americans will blame the president or recalcitrant Senate Republicans who have shown little interest in more deficit spending. The White House may hope that whatever unilateral actions Donald Trump can take will offer him some political protections.
The bottom line, however, is that millions of Americans will teeter closer to the edge of the financial abyss – and with Congress leaving town for summer recess, there’s little sign of substantive help from Washington anytime soon.
The US unemployment rate continued to fall in July in the US, but it was a much lower decrease than in May and June, denting hopes of an economic revival.
Negotiations have been going on for the past two weeks, as the US death toll from the coronavirus pandemic surpasses 160,000.
The US has far more Covid-19 cases by volume than any other country – more than 4.9 million – and its rate of infection has risen steadily throughout the summer.
Congress has already allocated some $3tn for pandemic relief so far.
Some Republicans in Congress do not wish to spend any more. Nearly half of Republican senators say they would oppose any new relief bill at all.
Following the 90-minute meeting, Senate Democratic leader Chuck Schumer told reporters it was “disappointing”.
“We’re asking them again to be fair, to meet us in the middle, not to have a ‘my way or the highway attitude,’ which they seem to have.”