9 April 2020 - Stephen Loiaconi (WJLA)
WASHINGTON (Sinclair Broadcast Group) — As federal officials and members of Congress weigh further steps to bolster the economy against the ramifications of the coronavirus outbreak, economists and the public remain hopeful the nation’s financial health can be mostly restored once the public health crisis has passed.
A CNN/SSRS poll released Wednesday found pessimism about the short-term prospects of the economy rising, but optimism about the long-term outlook is relatively high. According to the survey, about half of Americans are already feeling financial hardships as a result of the outbreak, with many lower-wage workers saying the hardship is “severe.”
About 60% of respondents said the economy is currently in poor shape, up 30 points since early March, marking the steepest downturn in public perception of the economy since 1997. Still, 67% believe the economy will be strong again within a year, with nearly all Republicans and about half of Democrats describing the outbreak as a temporary obstacle rather than a permanent change in the economy.
There is a similar partisan divide on the question of whether the federal government has done enough to mitigate the damage, with more than half of Americans overall saying the government must provide more assistance to workers and small businesses. About 75% of Democrats felt the stimulus bills passed by Congress had not gone far enough, but only about 25% of Republicans say lawmakers must do more.
As public health experts project the worst of the outbreak may come in the next week, Federal Reserve Chairman Jerome Powell said Thursday his agency is working to ensure the economy is in a position to bounce back strong on the other side. The Fed has announced a new $2.3 trillion funding initiative, including business lending programs and market interventions.
“At the Fed, we are doing all we can to help shepherd the economy through this difficult time,” Powell said during a Brooking Institution webinar. “When the spread of the virus is under control, businesses will reopen, and people will come back to work. There is every reason to believe that the economic rebound, when it comes, can be robust.”
The latest emergency action by the Fed came as the Labor Department announced 6.6 million Americans filed for unemployment benefits in the last week, bringing the total number of jobs lost over the last three weeks to at least 16.8 million. That amounts to more than 10% of the 159 million people who were employed in the U.S. a month ago.
“We entered this turbulent period on a strong economic footing, and that should help support the recovery,” Powell said.
Other economists see some reasons to be confident, but they say the strength of the recovery may hinge on how quickly public health officials and doctors can get the outbreak under control and whether social distancing restrictions remain in place long enough for the virus to be contained.
“If we can arrest the spread of the disease quickly, and if the health authorities can tell us that it’s safe to begin reengaging with work and related activities, then the prospects are very good that many of the workers who have filed for unemployment insurance—particularly those who remain with their previous employers—can resume work on a more-normal basis,” said David Wilcox, a nonresident senior fellow at the Peterson Institute for International Economics and former economist for the Federal Reserve Board.
However, Wilcox warned some workers and some communities would face longer-lasting repercussions, and the range of experiences across the country could be quite wide.
“The length of time businesses remain shut down is an important factor in the recovery. The longer businesses are shut down, the more likely they are to exhaust any financial resources they might have, which makes it difficult to recover once restrictions are lifted,” said Michael Clark, associate director of the Center for Business and Economic Research at the University of Kentucky, noting that consumers might also be reluctant to resume spending on big-ticket items until the recovery takes hold.
President Trump is eager to get businesses reopened and put the country on the road to recovery, and officials say that could begin early next month. The White House is reportedly putting together a new task force to focus on reviving the economy, though Trump adviser Larry Kudlow said Thursday there is no “formal structure” in place.
“Once we OPEN UP OUR GREAT COUNTRY, and it will be sooner rather than later, the horror of the Invisible Enemy, except for those that sadly lost a family member or friend, must be quickly forgotten. Our Economy will BOOM, perhaps like never before!!!” Trump tweeted Wednesday.
Experts say that reopening process will be gradual, with communities with low rates of infection and people at lowest risk from the virus returning to work first. As in China, some areas could have to impose new restrictions on businesses if the outbreak resurges. However, the U.S. has not yet ramped up testing to the level believed to be necessary to determine where it is safe to resume some semblance of normal activity.
“I’m worried we don’t have the systems in place to carefully reopen the economy,” Scott Gottlieb, former head of the Food and Drug Administration, told The Wall Street Journal. “You need to be able to identify people who are sick and have the tools to enforce their isolation. You have to have it at a scale we’ve never done before.”
With tens of millions of jobs expected to be lost and many restaurants and small businesses struggling through two or three months without regular revenue, it might be unrealistic to expect a smooth and speedy recovery for everyone. “Shark Tank” investor Barbara Corcoran told Eric Bolling on “America This Week” only about 10% of the businesses she has helped fund through the show are likely to survive, even with assistance from the government.
"Most didn't have the ability to stretch and wait for those checks to come in, so they've had to let a lot of people go," Corcoran said.
Clark expects many laid-off workers will be rehired, but it will take time and the labor market will not fully return to the strength that had been seen recently, when the unemployment rate held steady below 4% for over a year.
“Unfortunately, not all workers will return to work immediately as some employers, particularly smaller independent firms in leisure and hospitality and personnel services sectors, could shut down permanently,” he said.
Although economic data coming in the next few months could be worse than previous financial crises, experts say this downturn is different from others and the recovery could follow a different trajectory. Unlike the Great Depression or the financial crisis of 2008, the underlying cause is a public health emergency, not any weakness in the economy itself, so many larger companies still expect to bounce back by the end of the year.
“At some point, the health authorities will determine that it’s safe for people to begin to reengage with their work and other activities. That kind of a clear restart signal doesn’t occur in a typical recession,” Wilcox said, though he added there will be some setbacks along the way until the coronavirus can be dealt with decisively.
Starbucks projected Wednesday that it would see a 47% drop in earnings in the second quarter of 2020, with financial impact from the coronavirus outbreak stretching through the end of the fiscal year. Based on a rebound in sales in China since lockdowns were lifted there, though, the company anticipates it will “fully recover” in the next two quarters.
According to Bloomberg, other companies like Nike are also anticipating quick improvement in the U.S. after seeing that much of the damage they suffered in China was only temporary. However, China’s recovery is still in its early stages and has already encountered some obstacles.
New infections have forced the Chinese government to reimpose some restrictions and close some businesses that had just reopened. The Washington Post reported Chinese factories are also encountering a lack of orders because of sluggish economic activity in the U.S. and Europe.
“The early evidence there is mixed: Some restrictions clearly are being relaxed in China,” Wilcox said. “Other countries that managed to avoid strict social distancing measures in the earlier phases of this crisis have, more recently, had to impose them. There will be lots to learn from the experience of these other countries.”
The Congressional Budget Office issued an update to its economic forecast last week to take the pandemic into account, projecting the annualized growth rate of gross domestic product will slow by more than 28% during the second quarter of 2020 and unemployment will exceed 10%, with the ramifications of business closures and job losses felt well into 2021. That analysis did not include the effects of two emergency stimulus bills recently passed by Congress, but other economists do not anticipate an enormous boost from the legislation.
An analysis released Wednesday by the Penn-Wharton Budget Model found the $2.2 trillion CARES Act will likely produce about 1.5 million additional jobs over two years and add $812 billion to GDP. However, the model still projects a 30% annualized decline in GDP in the second quarter of 2020 and the unemployment rate reaching 11% in the third quarter.
Oxford Economics estimated a full recovery could take 12 to 18 months in a research note, predicting 16% unemployment in May and a 32% drop in GDP despite unprecedented government spending and monetary policy stimulus. During an event hosted by the Economic Club of Chicago Wednesday, Chicago Fed President Charles Evans warned the downturn will be “deep” and the risks to the economy will rise as the outbreak drags on.
“Even under a best-case scenario, the U.S. and global economy will be less prosperous coming out of this crisis than we were going into it,” Evans said. “We are all using valuable resources and savings that we had intended to use for other aspirations.”
Members of Congress have recognized the imperative to provide additional relief to American businesses and workers, but political disputes could slow efforts to dole out more stimulus. Senate Majority Leader Mitch McConnell, R-Ky., hoped to push through an infusion of $250 billion for the small business loan program created by the last emergency relief package Thursday, but Democrats are demanding more funds for states and hospitals and hazard pay for health care workers as well.
That skirmish could just be a preview of a much larger battle over the next multi-trillion-dollar stimulus package, with Democrats proposing infrastructure investment and election reforms while President Trump is again floating a payroll tax holiday. Previous emergency relief bills soared through both the House and Senate in a matter of days, but this one could take much longer to negotiate.
According to Elise Gould, a senior economist at the Economic Policy Institute, the success of the eventual recovery is largely dependent on policymakers providing workers and businesses with enough assistance to mitigate the severity of the economic pain many are currently facing.
“Right now, the focus has been on short-term relief and recovery,” she said. “If that valve gets closed too soon, it will not only put additional strain on families but will also hamper the recovery.”
The Economic Policy Institute has outlined several priorities for a phase four stimulus package: at least $500 billion for state and local governments through 2021, additional investments in unemployment benefits, another round of direct payments to households, full federal funding for coronavirus testing and treatment, and enhanced protections for workers performing essential jobs.
“Given timely and sufficient stimulus, I’m optimistic that many of those workers will return to work soon after the crisis is over,” Gould said.