After months of tug-of-war over another economic stimulus package to bolster the U.S. economy, political leaders in Washington say that the window to secure more COVID-19 aid before the election is closing quickly.
According to reports, House Speaker Nancy Pelosi will meet today with Treasury Secretary Steven Mnuchin to attempt to negotiate a compromise before Tuesday, which is the deadline she has set to get the legislation through Congress ahead of Nov. 3.
Both parties have been pushing hard to secure a deal in order to tout the win to voters as they head to the ballot box. But is another round of stimulus actually needed by the U.S. economy?
Last week, the Commerce Department reported that retail sales — a measure of purchases at stores and online as well as automobiles, gas and dining sales — grew in September for the fifth straight month, advancing 1.9% to $549.3 billion. That surpassed economists’ predictions for a 0.7% increase.
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Consumer spending has long been one of the key metrics by which experts gauge the health of the economy, and traditional wisdom suggests that these upticks indicate the U.S. fiscal situation is improving.
But there is more to the picture, according to economists — and it is very troubling.
“We’re headed towards a perfect storm,” said Brian Marks, professor of economics with the Pompeo College of Business at the University of New Haven. “No relief, a continuation of the virus, more uncertainty. And the longer there is prolonged relief, the longer we can anticipate an enduring recession. It has a cascading impact.”
Marks pointed to last month’s jobs report, which on the surface seemed favorable, as the jobless rate ticked down again to 7.9%. “One could arguably say it was directionally a good move,” he said. “But in reading some of the details, we see that permanent job losses actually increased by more than half of the hiring improvement. Add to that the increase in the number of people who are under long-term unemployment, and it doesn’t bode well.”
Furthermore, Marks said, as the country heads into winter, and as multiple states are beginning to battle a second surge of the coronavirus, more government restrictions could be implemented soon, which could dampen the gains that have been made by the economy during the summer and fall.
Meanwhile, the effects of rent and mortgage deferrals has not yet been fully felt by the markets. And in regard to those upbeat retail spending numbers, Marks cautions that it’s important to factor in price increases this year when assessing the relative strength of the consumer.
All reasons why leaders from the banking and retail industries have been speaking out lately, expressing concern about the economic outlook.
Federal Reserve chairman Jerome Powell called for aggressive financial intervention by the federal government during in a speech earlier this month to the National Association for Business Economics. “The risks of overdoing it seem, for now, to be smaller,” he said. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”
Leaders in the business community agree as well. Walmart CEO Doug McMillon appeared on CNBC’s “Squawk Box” last week and urged Democrats and Republicans to come together and take action on aid.
“For both sides, I think what they need to keep in mind is that there are Americans that need them that don’t really care about politics, aren’t really tied up in this election, and they just need some help,” he said. “Doing nothing is not the first and best option.”
According to reports, the latest stimulus agreement under discussion could total between $1.8 trillion and $2.2 trillion. It’s still unclear what specific programs might be included in the proposed legislation, but both political parties have said they favor providing more stimulus checks to individuals and continuing additional unemployment benefits — though they have differed widely on amounts.
Marks noted that aid for small businesses is especially needed now, since the Main Street Lending Program overseen by the Federal Reserve is out of reach of most mom-and-pops.
And most of the loans from the Small Business Administration’s Payroll Protection Plan (which ended in the summer) have been doled out and utilized.