18 June 2020 - Stephen Loiaconi (KATU)
WASHINGTON (Sinclair Broadcast Group) — New jobless claims slowed this week amid signs that the economy may be recovering from the coronavirus pandemic faster than expected, but some economists say more stimulus from Congress is still needed to avoid losing ground, especially if the outbreak resurges in the months ahead.
“I have to get the economy going again and I’ll do that,” President Donald Trump told Sinclair’s Scott Thuman Wednesday. “It’s already happening. Because when I get people’s jobs back, and I believe next year will be actually better than ever before.”
Despite some promising data, experts are skeptical that rebound will happen as quickly and as thoroughly as the president expects if Congress fails to provide further relief to millions who are still struggling with lost jobs and lost income. Lawmakers have already taken unprecedented steps to aid businesses and workers impacted by lockdowns and social distancing restrictions, but many say they have not gone far enough to address the challenges the economy faces.
In another interview Wednesday, President Trump predicted a “very dramatic” phase 4 stimulus package would be coming later in the summer, but he offered no details about what is under consideration. Treasury Secretary Steven Mnuchin said another round of direct payments to Americans is possible, but the next bill should take “a much more targeted approach to the workers and businesses that clearly will have the most difficult time restarting and rehiring.”
Congress has already approved more than $3 trillion in stimulus spending, the largest legislative response to a fiscal crisis on record, and most lawmakers agree some additional funding will be required. What exactly that will entail is unclear as both parties dig in on specific priorities and election-year politics hinder compromise.
House Democrats have already passed the HEROES Act, a $3 trillion bill that would send more direct payments to families, extend and expand enhanced unemployment benefits, provide hazard pay to workers, and bolster state budgets stretched thin by unanticipated health care costs. Republicans maintain the House bill is a non-starter in the GOP-controlled Senate, and President Trump has floated his own proposals like a payroll tax holiday, a domestic travel tax credit, bonuses for people who return to work, and a massive infusion of infrastructure spending.
The Trump administration and congressional Republicans have so far resisted calls from Democrats to extend added unemployment benefits of $600 a week that were created under the CARES Act beyond July 31. GOP lawmakers believe continuing the generous payments could discourage the unemployed from returning to work, but job losses are still piling up.
The Department of Labor reported Thursday 1.5 million new unemployment claims were filed over the last week, marking 13 straight weeks with unemployment claims above 1 million. The total number of people receiving benefits slipped slightly from the previous week to 20.5 million, with 9.2 million others receiving a supplemental benefit for the self-employed and gig workers.
New unemployment claims are slowing steadily as states ease coronavirus restrictions and businesses reopen, but continued losses could complicate the path to economic recovery. Although job growth and retail sales gains set records in May, that trajectory might be unsustainable if more workers are being laid off every week in higher numbers than during the Great Recession.
“The missing piece is hiring,” said Heidi Shierholz, a former Department of Labor economist and director of policy at the Economic Policy Institute, in a blog post. “If there are a large number of layoffs, there can still be job growth if there is also a lot of hiring (or rehiring). In today’s gradually reopening coronavirus economy, hires (or rehires) are now outpacing job losses, but we are still seeing a huge number of people losing jobs.”
Michael Miller, an economist at DePaul University, stressed most who are newly unemployed have lost their jobs through no fault of their own but because the government mandated their businesses close. As a result, he argued the government bears a responsibility to help dig them out of the hole they are now in.
“It is important for both economic and social reasons to assist those who most directly and dramatically affected by the mandatory shutdown,” Miller said. “Government broke it; government must fix it.”
While 2.5 million jobs were added to the economy in May, unemployment is still in the mid-double-digits and some sectors have been hit far harder than others. The recovery is also likely to look very different in different industries.
“There are millions of people who lost their jobs in restaurants, airlines, hotels and other travel-related businesses who will not see them coming back any time soon,” said Dean Baker, senior economist at the Center for Economic and Policy Research.
However, Michelline Dufort, director of the Center for Family Enterprise at the University of New Hampshire—who held a conference call with dozens of CEOs Wednesday—said not all business owners are eager to see more assistance from the government before they know what their true needs are.
“I would say the general sentiment is to see how we do before we pump more stimulus into the market,” Dufort said. “One thing on everyone’s mind is, of course, the possibility of a rebound of COVID. Generally, it would make more sense to wait and see if indeed that occurs, and hope for the continued flattening.”
A group of more than 150 economists, including former Federal Reserve Chairman Ben Bernanke, signed a letter earlier this week urging Congress to pass a “multifaceted relief bill of a magnitude commensurate with the challenges our economy faces.” The statement, released by the Center for Equitable Growth, warned of prolonged economic damage to families of color without additional intervention.
“While the signers of this letter have different views on the optimal size and composition of the package, we all agree that an adequate response must be large, commensurate with the nearly $16 trillion nominal output gap our economy faces over the next decade, according to CBO estimates,” the letter addressed to congressional leaders stated.
Jason Furman, former chairman of President Barack Obama’s Council of Economic Advisers, anticipated a surge in economic activity once businesses were allowed to reopen, but he believes further government support is necessary to prevent a backslide later in the summer. In an interview with CNBC Wednesday, he stressed much of the retail sales boom in May is attributable to new disposable income Americans received through stimulus programs.
“You’d potentially see a double-dip reversal in terms of our economic trajectory,” Furman said. “I wouldn’t want to take my chances on something like that when we’re still in a very fragile and very uncertain position with the virus and with the economy.”
Furman is one of the authors of a bipartisan Aspen Institute proposal that would continue enhanced unemployment benefits beyond July at a reduced rate of up to $400 a week while also introducing a payroll subsidy to incentivize Americans to get back to work. Federal Reserve Chairman Jerome Powell testified before the House Financial Services Committee Wednesday that it would be important to extend the benefits in some form, but he declined to offer a specific recommendation.
“If the benefits stop at the end of July, as currently scheduled, and we still have 20 million people getting them, this would be pulling $48 billion a month out of people's pockets,” Baker said, though he added it could make sense to reduce the extra benefit in areas where it is safe to return to work.
Economists agree halting the enhanced benefit when unemployment still exceeds numbers seen during the Great Depression would be unwise. However, they acknowledge a fraction of Americans are likely staying out of the labor force because they take in more with the extra benefits than they would earn if they returned to work.
“If we are starting a sustained recovery, extending the benefits could actually impede the recovery,” said Michael Clark, director of the Center for Business and Economic Research at the University of Kentucky. “If the economy is not recovering, extending the benefits could help support the economy by allowing unemployed workers to pay their bills and maintain their spending levels until the economy does recover.”
Early stimulus efforts were blunt instruments by necessity—stopgap measures to prevent an economic catastrophe—but future assistance could conceivably be more carefully crafted.
“The government has to be surgical in who it helps—the policy must be targeted to those most in need—and how much it helps so that the policy does not create disincentives to work,” Miller said.
Jeffrey Bergstrand, a finance professor at the University of Notre Dame and former Federal Reserve economist, cautioned that ending the unemployment benefits would mean less money in millions of consumers’ pockets and likely less economic activity as a result. He observed that Congress failed to follow up the first package of stimulus after the 2008 financial crisis with another round of robust relief, and lawmakers could be at risk of repeating that mistake.
“That kind of set the stage for a very slow decline in unemployment,” Bergstrand said.
Topline job numbers do not tell the whole story, though. Some businesses are struggling to rehire workers now, while others are realizing they can survive with smaller staffs. The full extent of the economic damage inflicted by the outbreak might not be clear until stimulus funds expire.
“It’s no secret that, in many cases, businesses owners are struggling with going up against a pretty attractive unemployment package for a certain type of employee,” Dufort said. “What will be the real test is when that package runs out and what jobs, or true needs, will still be there.”
President Trump suggested Wednesday that “we’re doing very well with COVID,” but many states are grappling with spikes in coronavirus cases and the resumption of normal business activity could make containing the virus even more difficult. Until a vaccine is available, the threat of localized surges in infection or a second wave sweeping across the nation will remain into the fall and winter.
“A spike in cases could indicate that we’re not managing to reopen the economy without spreading the virus further, which could prompt state governors to reimpose some social distancing requirements to protect their residents,” Clark warned.
Growing uncertainty about both the spread of the virus and the state and federal government response to it could present new challenges for policymakers. Americans might be reluctant to keep spending money if they fear more hardships or more lockdowns are in their immediate future.
“It is going to delay a broad-based increase in economic activity,” Bergstrand said. “The longer that lasts, the more prolonged the uncertainty, and that drags out the recovery.”
According to Baker, other countries like Germany and France have been able to get the coronavirus under control more quickly and have been able to resume normal business activity more smoothly as a result. As long as the U.S. is struggling to contain the virus and some officials are resisting measures like promoting the use of face masks that would help with that effort, he sees little hope for a sustained economic recovery.
“We are paying an enormous human and economic cost for the failure to take effective measures to rein in the pandemic,” he said.