With the fate of a federal aid package suddenly questioned by President Trump, economic data on Wednesday showed why aid is so desperately needed.
Personal income fell in November for the second consecutive month, the Commerce Department said on Wednesday, and consumer spending fell for the first time since April, with reduced government aid and a worsening pandemic continuing to affect the US economy. USA.
Separate data from the Department of Labor showed that unemployment insurance claims remained high last week and have increased since the beginning of November.
Together, the reports are the latest evidence that the once promising economic recovery is bursting.
“We know things are going to get worse,” said Daniel Zhao, senior economist at the career website Glassdoor. “The question is how much worse.”
The answer depends largely on two factors: the path of the pandemic and the willingness of the federal government to provide aid.
Congress, after months of delays, acted on Monday, approving a $ 900 billion economic aid package that would provide aid to the unemployed, small businesses and most families. Most urgently, it would prevent millions of people from losing unemployment benefits later this week.
But on Tuesday night, Trump demanded radical changes to the project, casting doubt on whether he would sign it.
Trump’s criticism of the relief effort, which he called “disgrace”, was that he was not generous enough: he asked Congress to provide $ 2,000 per person in direct payments to families, instead of the $ 600 included In the project.
Many economists see direct payments as one of the least effective measures in the package, because much of the money would go to families who do not need it. But in addition to the merit of any specific measure, the real risk is that Trump’s comments may delay aid or render it totally unfeasible.
The data released on Wednesday highlight the fragility of the economy. Personal income fell 1.1% in November and 3.6% since July, as the loss of federal assistance more than offset the increase in wages and salaries.
Consumer spending, which proved resilient in summer and autumn, fell 0.4%, a sinister sign for small businesses trying to survive the winter. Some of the biggest declines occurred in the categories most exposed to the impact of the pandemic: spending on restaurants and hotels fell 3.8% in November, and spending on transportation, clothing and gasoline also decreased.
The downturn in spending is spreading to the job market. About 869,000 people filed for new state unemployment benefits last week. The index fell from the previous week, but is significantly above the level of early November, before an increase in coronavirus cases led to a new round of layoffs in much of the country.
Another 398,000 people filed for Pandemic Unemployment Assistance, one of two federal programs to expand unemployment benefits that were set to expire this month without Congressional action. Some analysts expect the December job report to show a net job loss.
“The data only emphasizes the importance of fiscal support,” said Aneta Markowska, chief economist at Jefferies, an investment bank. Without it, she said, “there would be permanent damage and it would probably be quite significant”.
The aid project was smaller than many economists said was needed to drive the economy during the pandemic and ensure a robust recovery. It will not revive the most affected industries or undo the damage caused by months of lost income for many families.
But the package may be enough to avoid the wave of small business evictions and bankruptcies that many economists warn would be inevitable without it. And it should be enough to prevent a recession from falling, which an increasing number of meteorologists said was likely without a quick injection of federal money.
The stakes are particularly high for the millions of Americans who would be left without income during what could be one of the worst months of the pandemic.
The aid package approved this week would extend two emergency programs that cover people who are outside the regular unemployment system or whose benefits have expired. About 14 million people were enrolled in the two programs in early December, according to the Department of Labor, although fraud and data collection problems mean that that number may exaggerate the true total.
But if the bill does not become law, the two programs will expire at the end of this week. This could drive nearly five million people into poverty virtually overnight, according to an estimate by researchers at Columbia University.
Carson Noel spent 35 years at live events, working on cruise ships, on Broadway and at conventions across the country. The pandemic ended it all.
“Literally, over the course of a week, I watched the next six months of my work go away,” he said.
Noel, 51, has ended his regular unemployment payments and emergency pandemic benefits, leaving him without income. The bill passed by Congress would restore its benefits for at least a few weeks, but now they are in doubt.
Even though the bill becomes law, Noel said it was too late to rescue his finances. He cut his grocery bill and moved in with his sister in Tucson to save money, but even with his expenses kept to a minimum, his savings were largely depleted.
“I’m fine for another month and then I’m in trouble,” he said. “I’m just trying to survive right now.”
The second stimulus
Answers to your questions about the stimulus law
Updated December 23, 2020
Lawmakers agreed to a plan to issue $ 600 stimulus payments and distribute $ 300 federal unemployment insurance for 11 weeks. You can find more information about the invoice and what it offers here.
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- Will I receive another stimulus payment? Individual adults with adjusted gross income on their 2019 tax returns of up to $ 75,000 per year would receive a payment of $ 600, and heads of households earning up to $ 112,500 and a couple (or someone whose spouse died in 2020) earning up to $ 150,000 per year would receive double that amount. If they have dependent children, they will also receive $ 600 for each child. People with incomes just above these levels would receive a partial payment that decreases by $ 5 for every $ 100 of income.
- When can my payment arrive? Treasury Secretary Steven Mnuchin told CNBC that he expected the first payments to be made before the end of the year. But it will take a while for all eligible people to receive their money.
- Does the agreement affect unemployment insurance? Lawmakers have agreed to extend the amount of time that people can receive unemployment insurance and to restart an extra federal benefit that is provided in addition to the normal state benefit. But instead of $ 600 a week, it would be $ 300.
- My rent is late or I hope to be soon. Will I get any relief? The deal would provide $ 25 billion to be distributed by state and local governments to help tenants who are left behind. To receive assistance, families would have to meet several conditions: Family income (for 2020) cannot exceed more than 80% of the area’s average income; at least one family member must be at risk of homelessness or housing instability; and individuals must qualify for unemployment benefits or have experienced financial difficulties – directly or indirectly – because of the pandemic. The agreement provided that care would be given priority to low-income families who have been unemployed for three months or more.
Even if Mr. Trump signs the aid package, millions of people may temporarily lose their benefits.
By waiting until the last minute to act, lawmakers forced state labor departments – which administer state and federal unemployment benefits – to prepare for the end of programs. Many states will not be able to reverse the course in time to avoid a payment gap.
State employment officials said they monitored events in Washington and consulted the federal Department of Labor so they could act quickly to restore benefits. But some said that at least a brief lapse was inevitable. Any delay in signing the bill would make the delay even longer, said Michele Evermore, senior policy analyst at the National Employment Law Project.
“Every day it drags on, it is a day that it is difficult to put food on the table for children, it is more of a lost account, it is just another difficulty,” she said.
Even with millions of unemployed workers facing the prospect of a harsh winter, however, some people and industries are in a much stronger shape.
Orders for capital goods – a measure of business investment – increased in November, the Commerce Department said on Wednesday, a sign that large corporations remain confident, even as restaurants and other small businesses struggle to survive.
In addition, household savings are more than $ 800 billion more than in February, before the pandemic shook the economy. Economists said those savings were likely to be concentrated among white-collar workers who kept their jobs while saving by cutting travel and leisure spending. Many also benefited from the rise in the stock market.
High levels of savings are one reason many economists doubt the need for another round of direct aid to families, let alone the $ 2,000 demanded by Trump. These payments can help people who have kept jobs but lost hours or income. But much of the money would go to families that are financially secure and would probably be more saved than spent.
These savings could help fuel a speedy recovery, since coronavirus vaccines are widely available, allowing Americans to resume travel, attending shows and meeting in bars and restaurants. But this perspective only reinforces the need for help to ensure that companies survive until then.
“In just a few months, things will be dramatically better, but that is no reason to suffer in the meantime,” said Ian Shepherdson, chief economist at Pantheon Economics. “You just shoot yourself in the foot to allow companies to break.”