US Economy: Joe Biden doesn’t have a magic wand to fix

US Economy: Joe Biden doesn’t have a magic wand to fix

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But many economists and business leaders agree that no government aid to individuals and small businesses can fix the economy until the underlying cause of the problems – the Covid-19 pandemic – is defeated. At best, the combination of the $ 900 billion plan approved in December, and this president-elect plan, can only help the economy keep moving forward until the pandemic is under control.

“This is a very big package, but it is about helping the economy stay together in the best possible way until the end of the pandemic,” said Mark Zandi, chief economist at Moody’s Analytics.

Zandi and other economists believe that gross domestic product, the country’s broadest measure of economic activity, could skyrocket if Biden receives his full package soon after taking office. But employment growth will be much more subdued.

The US economy lost 22 million jobs in March and April and ended the year with another net decline of 140,000 jobs. Even with the 12.5 million jobs recovered in the middle, this caused the number of US employees to fall by almost 10 million during the pandemic. Moody’s forecast that these jobs will not be fully recovered until 2022, even if Biden receives his full package.

“We achieved a lot of GDP growth in advance, but it will take 18 to 24 months to recover all these jobs,” said Zandi. “Many people simply cannot go back to work until the pandemic is in the rear view mirror.”

Solving the underlying problem

And unfortunately, the message from public health experts is clear: the pandemic is going to get worse before it gets better.
New cases, hospitalizations and deaths in the United States are at or near record levels. This could lead to new requests for blocking and closing deals in many parts of the country, as were imposed in other nations, especially with a new, more communicable version of the virus. The vaccine being launched is not expected to reach enough of the population to allow most Americans to return to normal life by summer, at the very least.
This may mean a slower-than-expected return to economic activity, such as eating in restaurants and traveling. The economy lost jobs in December for the first time since April because of massive unemployment in leisure and hospitality businesses, as well as restaurants and bars. The stimulus may help many companies and individuals to weather the storm, but it will not save them from bankruptcy, experts say.

“There really isn’t much that can be done from an economic policy standpoint when the pandemic continues to grow,” said Andrew Hunter, senior economist at Capital Economics. “Things are going well for some time later this year, but it depends first of all on whether the vaccines are launched so that everything returns to normal.”

Biden promised to step up vaccination efforts, which he said were “a terrible failure so far”. But it is not clear how successful these efforts will be, and how much they could be delayed by the resistance of many members of the public to being vaccinated.

“We are having a slower-than-expected vaccine launch and this is really weighing on expectations when we will return to pre-pandemic life,” said Ed Moya, senior market analyst at Onada.

Uncertainty for business

And that uncertainty is causing problems for companies, from retailers to airlines and banks, as they try to make plans, even companies that have so far done well.

“The rules of the game are always changing. For a businessman, this is oppressive,” said Zandi. “They will not feel that the coast is clean. This uncertainty will decrease the ability to go out and expand and grow. They will not go out and hire more people because they are not sure what is to come in the future. This is going to be a process. I don’t think it’s like a light switch. ”

What also prevents the economy from getting a quick boost from the proposed stimulus package is the fact that many companies have already closed permanently because of the crisis and, therefore, permanent job losses are increasing. The money that Biden is proposing in direct aid to most US families and expanded and extended unemployment benefits will help many families overcome the crisis, but will not repair all the damage done to the economy during the crisis.

“It takes much less time to destroy jobs than it takes for the economy to create new jobs,” said Joel Prakken, chief economist at IHS Markit in the United States. “I have seen estimates that a third of the jobs lost will never return to their previous form.”

Is it enough?

The money proposed by Biden is only slightly less than what was passed under the CARES Act in March, but Biden made it clear last week that this is just the first step in what he will ask Congress to spend. This first package is more than double the $ 787 billion stimulus package approved shortly after Barack Obama and Biden took office in 2009, at the height of the Great Recession.

The CARES Act money, approved at a time when more than 22 million Americans were losing their jobs, had a notable impact on the economy and on families’ ability to withstand the economic crisis. Despite the economic turmoil, the number of individual bankruptcy filings fell 31% in 2020, to the lowest level since 1987, according to an analysis by Equip for the American Bankruptcy Institute.

When will Americans see help from Biden's relief proposal? It depends on the Congress

“The government’s continued relief programs, default and creditors’ postponements have helped families and businesses cope with last year’s economic challenges resulting from the Covid-19 pandemic,” said ABI Executive Director Amy Quackenboss.

But this support, however important, has not ended the economic crisis. Even with millions of unemployed being called back to work, there are still 10.7 million people looking for jobs who can’t find them, 2.2 million more who want jobs but have stopped looking and 6.2 million who are working only part-time, even though they want a full-time job. Getting them back to work will take time, even with the stimulus, according to experts.

And much of that help has ended, or will end soon. It is unclear how much of the $ 1.9 trillion Biden is asking for will be approved by a divided Congress. Prakken from IHS Markit believes the final amount is likely to be close to $ 1 trillion. Moody’s estimates it could be close to $ 750 billion.

But the key to when the economy recovers probably depends less on the stimulus than on the state of the pandemic and when life returns to something that seems more normal, for companies and their customers.

“Deaths are likely to peak in late winter / early spring,” said Prakken. “It will probably be sometime in the second half of the year that people will be most comfortable going out.”

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