When the fate of President Trump’s federal aid package was suddenly called into question, Wednesday’s economic data showed why the aid is so urgently needed.
Personal income fell for the second consecutive year in November Commerce Department said WednesdayFor the first time since April, consumer spending fell as dwindling government aid and a worsening pandemic continued to weigh on the US economy.
Separate data from the Ministry of Labor showed this Applications for unemployment benefits remained high last week and have been increasing since early November.
Taken together, the reports are the latest evidence that what was once a promising economic recovery is faltering.
“We know things are going to get worse,” said Daniel Zhao, senior economist at Glassdoor. “The question is how much worse.”
The answer depends heavily on two factors: the course of the pandemic and the willingness of the federal government to provide assistance.
After months of delays, Congress passed a $ 900 billion economic aid package on Monday to help the unemployed, small businesses and most households. Most urgently, it would prevent millions from losing unemployment benefits by the end of this week.
But on Tuesday night, Mr Trump called for sweeping changes to the bill and cast doubt on whether he would sign it.
Mr. Trump’s criticism of the relief efforts, which he described as “shameful”, was that it was not generous enough: he asked Congress to allocate $ 2,000 per person for direct payments to households instead of the $ 600 that is in the bill are included.
Many economists consider direct payments to be one of the least effective measures in the package, as much of the money would go to households that don’t need it. However, beyond the merits of any particular measure, there is a real risk that Mr Trump’s comments could delay aid or derail it altogether.
The data released on Wednesday highlighted the fragility of the economy. Personal income fell by 1.1 percent in November and has fallen by 3.6 percent since July, as the loss of federal aid more than offset the rising income from wages and salaries.
Consumer spending, which had been robust in the summer and fall, declined 0.4 percent, a ominous sign for small businesses trying to survive the winter. Some of the biggest declines were in categories most exposed to the effects of the pandemic: spending on restaurants and hotels fell 3.8 percent in November, and spending on transportation, clothing and gasoline also fell.
The decline in spending has an impact on the labor market. About 869,000 people filed new claims for state unemployment benefits last week. That was less than a week earlier, but it is well above the levels seen in early November before a surge in coronavirus cases across much of the country led to a new round of layoffs.
Another 398,000 people filed for Pandemic Unemployment Assistance, one of two federal programs to expand unemployment benefits that were due to expire this month with no action by Congress. Some forecasters expect the December employment report to show a net loss of jobs.
“The data only underscores the importance of tax assistance,” said Aneta Markowska, chief financial economist at Jefferies, an investment bank. Without it, she said, “there would be permanent damage, and it would probably be quite significant.”
The relief bill was smaller than many economists said it was necessary to run the economy through the pandemic and ensure a robust recovery. It won’t revive the hardest hit industries or undo the damage that months of lost income have left many households with.
But the package might be enough to prevent the wave of evictions and small business failures that many economists warn that without it, it is inevitable. And it should be enough to avoid falling back into recession, which, according to an increasing number of forecasters, is likely without a quick injection of federal funds.
The stakes are especially high for the millions of Americans who would have no income during what may be the worst months of the pandemic.
The relief package passed this week would extend two emergency programs that cover people who are excluded from the regular unemployment system or whose benefits have expired. According to the Department of Labor, around 14 million people were enrolled in the two programs in early December, though fraud and data collection issues can cause the number to overestimate the real total.
However, if the bill does not become law, the two programs will expire later this week. According to official figures, this could drive almost five million people into poverty practically overnight an estimate by Columbia University researchers.
Carson Noel has spent 35 years in live events, cruise lines, Broadway and conventions across the country. The pandemic wiped everything away.
“Literally over a week, I saw the next six months of my work go by,” he said.
Noel, 51, has reached the end of regular unemployment benefits and emergency pandemic benefits and has run out of income. The bill passed by Congress would restore its benefits for at least a few weeks, but now these are in doubt.
Even if the bill becomes law, Mr Noel said it would be too late to save his finances. He’s cut his grocery bill and moved in with his sister in Tucson to save money, but even when his expenses are kept to a minimum, his savings are largely depleted.
“I’ll be good for about a month and then I’ll be in trouble,” he said. “I’m just trying to survive at this point.”
Legislature agreed to a plan to grant $ 600 stimulus payments and distribute $ 300 federal unemployment benefits for 11 weeks. You can find more information about the invoice and its content here.
- Do I get another incentive payment? Single adults with adjusted gross income A 2019 tax return of up to $ 75,000 per year would pay $ 600, and head householders up to $ 112,500 and a married couple (or someone whose spouse died in 2020) earning up to $ 150,000 per year would be paid receive double that amount. If they have dependent children, they will also receive $ 600 for each child. People with incomes just above this level would receive a partial payment that decreases by $ 5 for every $ 100 of income.
- When could my payment arrive? Treasury Secretary Steven Mnuchin told CNBC that he expected the first payments to be made before the end of the year. However, it will take a while for everyone to receive their money.
- Does the agreement concern unemployment insurance? Legislators agreed to extend the length of time people can receive unemployment benefits and restart an additional federal benefit that is on top of the usual state benefits. But instead of $ 600 a week it would be $ 300. That would take until March 14th.
- I am behind on my rent or expect to be soon. Do I get relief? The deal would provide $ 25 billion to be distributed through state and local governments to help backward tenants. To get help, households would have to meet several conditions: Household income (for 2020) must not exceed 80 percent of the area median income. At least one household member must be at risk of homelessness or residential instability. and individuals must be eligible for unemployment benefits or face financial difficulties directly or indirectly due to the pandemic. The agreement states that priority will be given to support for lower-income families who have been unemployed for three months or more.
Even if Mr Trump signs the aid package, millions of people could temporarily lose their benefits.
Legislators waited until the last minute to act, forcing the state labor offices that manage both state and federal unemployment benefits to prepare for the end of the program. Many states will not be able to reverse course in time to avoid defaults.
State employment officials said they were monitoring developments in Washington and consulting with the Department of Labor so they could act quickly to restore benefits. However, some confirmed that at least a brief mistake was inevitable. Any delay in signing the bill would add to the delay, said Michele Evermore, senior policy analyst for the National Employment Law Project.
“Every day that drags on, it’s a day that it’s difficult to put food on the table for the kids. It’s another bill that was missed. It’s just another difficulty,” said she.
Although the prospect of a bleak winter for millions of unemployed people, some people and industries are in much stronger shape.
Capital goods orders – a measure of corporate investment – rose in November, the trade department said WednesdayThis is a sign that big businesses remain confident even as restaurants and other small businesses struggle to survive.
In addition, household savings are more than $ 800 billion higher than in February before the pandemic revived the economy. Economists said those savings were most likely focused on employees who kept their jobs while saving money by cutting expenses on travel and leisure. Many have also benefited from the rapid stock market.
Huge savings are one reason many economists were skeptical of the need for another round of direct household aid, let alone the $ 2,000 per person Mr Trump requested. Such payments could help people who keep their jobs but have lost hours or income. But much of the money would go to households that are financially secure and most likely to be saved rather than spent.
These savings could result in a speedy recovery once coronavirus vaccines become widespread, allowing Americans to travel, attend concerts, and gather in bars and restaurants again. However, that prospect only underscores the need for help to make sure businesses get there by then.
“Just a few months later, things get dramatically better, but that’s no reason to suffer in the meantime,” said Ian Shepherdson, chief economist at Pantheon Economics. “It’s just about shooting yourself in the foot so companies can go broke.”