What price to fix the COVID-stricken U.S. economy? It’s complicated
Judged from Idaho, Utah, Kansas or Alaska, home to U.S. senators arguing for a smaller next round of federal spending to fight the coronavirus recession, the country’s economic situation might seem less dire as the distribution of vaccines gathers pace and a possible end to the pandemic approaches.
Employment as of December in those states was back above where it was a year ago, and while outsized numbers still claim unemployment benefits in each, at least their employed workforces seem more normal.
But judge the situation from Nevada or New York, Hawaii or Massachusetts, and the outlook is dismal, with more than 8% of jobs still gone.
In the congressional debate about how much more to spend battling the pandemic’s economic fallout, a silent player in the fracas is the patchwork nature of the recovery itself. It’s moving along briskly in some parts of the country, for some people and in some industries. It’s lagging badly in others.
That’s left a large gap in perceptions of what’s needed.
The Biden administration is pressing for $1.9 trillion it argues will nurse the country to the other side of a pandemic expected to ease come summer or fall as inoculations take hold.
A group of Republican senators say a smaller, more targeted $600 billion bill would suffice.
New data Friday could influence the debate when the government issues the jobs report covering January. Employment fell in December, and worries the surging pandemic was thwarting the recovery prompted lawmakers late that month to approve another $900 billion to extend unemployment benefits and loans to small business.
Another 779,000 new unemployment claims were filed last week, still around triple the weekly counts before the pandemic.
Treasury Secretary Janet Yellen on Thursday said this was a moment to “act big” with an ongoing health crisis leaving millions unemployed and Main Street on the brink.
“We need to make sure that people have jobs and if they don’t have jobs that they are supported,” Yellen said on ABC’s Good Morning America. “We have to be sure that we provide a bridge so that people are not scarred indefinitely by this.”
Putting a price on what more is needed isn’t straightforward given uncertainty around when immunization will return the economy to normal, how fast businesses will rehire or invest, and how company and consumer preferences have changed.
In a recent analysis, economists with the Brookings Institution, where Yellen worked prior to her cabinet appointment, said the full Biden bill could overshoot in a potentially destabilizing way.
While “millions will suffer” without some further federal response, wrote economists Wendy Edelberg, director of Brookings’ Hamilton Project, and Louise Sheiner, the full package “may be so large that the increase in demand would be broad, increasing the chances of a somewhat more painful adjustment.”
Businesses might overinvest on the basis of a temporary surge, for example, then later pull back. Prices might rise, and workers may or may not be prepared to enter the jobs demanded.
The Republican plan, by contrast, leaves the economy short of where it would have been for years to come.
The choice comes as the economy is projected to claw back much of 2020’s lost production in coming months.
The Congressional Budget Office this week estimated the economy will actually bounce back to its 2019 level of total output this year, earlier than expected. On the basis of what Congress has already approved, St. Louis Federal Reserve President James Bullard said this week an “incipient boom” was developing with potential growth this year of 6%, about triple the estimated long-term U.S. trend.
That won’t help everyone at the same time, however. The job market in particular is seen recovering much more slowly.
The gash in employment at the pandemic’s start a year ago was a major spur in Congress’ approval of three rounds of federal help, which aimed to keep workers and small businesses afloat. That aid helped personal income rise last year, despite the pandemic, supporting spending and leaving households with a cushion against future hardship.
As it stands, the $300 weekly unemployment insurance lifeline extended by Congress in December expires on March 14. That’s now putting about $5.4 billion a week into family bank accounts that, without further action, will disappear well before the economy is ready to reopen in earnest.
At the Biden administration’s targeted vaccination pace of 1.5 million per day, it may be late summer before enough of the population is inoculated for people to feel comfortable socializing and traveling, and for restaurants, airlines, theaters and sports arenas to staff for capacity.
Until then, it’s uncertain how fast the economy will regain the 9 million jobs that are still missing.
“Under almost any scenario it will take a long time for these households to dig out,” said Moody’s Analytics economist Ryan Sweet. “It’s better to err on the side of doing too much.”
Source: Reuters (Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)