Here’s the situation the US economy faces, with a month before Election Day: Job growth has stalled. The layoffs are mounting. And no more help is coming.
American households and businesses have gone two months without the major unemployment benefits, low-interest loans, and other programs that helped bolster the economy in the spring. And now, following President Trump’s announcement Tuesday that he would halt stimulus negotiations until after the election, the wait will go on for at least another month – and most likely until the next presidential term begins in 2021.
It could be a dangerous delay.
Many layoffs are already turning into permanent job losses, and big companies like Disney and Allstate are embarking on new rounds of layoffs. The hotel industry warns of thousands of closures and tens of thousands of small businesses are considering whether to permanently close the store. It is estimated that one in seven businesses in the United States have closed permanently by the end of August – 850,000 in all – according to data from Womply, a marketing platform. The deeper those wounds are, the longer the economy will take to heal.
“The risk of waiting is that we may find ourselves at a point where we can’t go back, we will reach a tipping point,” said Karen Dynan, a Harvard economist and Treasury Department official during the Obama administration.
Jerome H. Powell, chairman of the Federal Reserve, echoed these concerns in a speech Tuesday, arguing that failing to act quickly posed risks to the economy.
“Insufficient support would lead to a weak recovery, creating unnecessary disruption for households and businesses,” he said. “Over time, household insolvencies and business failures would increase, damaging the productive capacity of the economy and holding back wage growth.”
Failure to provide such assistance will affect the economy.
“The economy needs another round of fiscal support with aid to families, small and medium-sized businesses and states,” said R. Glenn Hubbard, a Columbia University economist who was chairman of the House’s Council of Economic Advisers. Bianca under President George W. Bush. “Not taking action will have real economic consequences.”
Equity indices, which had risen in recent days due to signs of possible progress in the negotiations, dropped sharply after Trump’s announcement. Several large Wall Street banks had said in recent days that they would lower their growth forecasts if the talks stopped.
Mr. Trump may have listened. In a series of tweets on Tuesday at the end, he urged both Houses of Congress to do so “IMMEDIATELY” relaunch an overdue loan program for small businesses and approve funds for airlines and another round of stimulus controls. It was unclear whether his tweets reflected a willingness to restart negotiations.
The stalemate in Washington is a turnaround from the spring, when fear of an impending economic collapse led Congress to overwhelming votes to pass trillions of dollars in aid to families and businesses. The effort was very successful: Families started spending again, companies started bringing workers back, and an expected tidal wave of evictions and foreclosures mostly didn’t materialize. The unemployment rate, which reached nearly 15 percent in April, fell to 7.9 percent in September.
But most aid programs expired over the summer and economic gains have faltered in recent weeks. Economists across the ideological spectrum agree that the loss of momentum is likely to worsen if no more help arrives soon.
“We had a bridge that took us until about September, and now the question is: do we complete the bridge or not?” said Raghuram G. Rajan, a former chief economist at the International Monetary Fund who is now a professor at the University of Chicago. Without further help, he said, “pretty much whoever was on that bridge falls off a cliff.”
European equities fell lower on Wednesday as investors absorbed the news that greater US fiscal stimulus could be unlikely any time soon. But Wall Street futures rose, indicating that stocks will rise when trading begins, after President Trump tweeted overnight that he wanted to revive some stimulus measures. Asian markets closed little changed.
The moves followed a sharp reversal in financial markets on Tuesday after Trump unexpectedly announced the end of negotiations with Democrats on a new economic aid package. Mr. Trump later appeared to back down and said on Twitter that he would be willing to approve more stimulus controls and program spending for airlines and small businesses.
The Stoxx Europe 600 index slipped 0.1%. US Treasuries declined, with the 10-year yield rising 0.03 percentage points as some traders moved away from the safe haven. The dollar has changed little.
“We are back in family deadlock territory,” said Susannah Streeter, analyst at Hargreaves Lansdown. “There is no doubt that a stimulus plan will eventually go through the Senate, but as we are getting closer and closer to the vote, it seems more unlikely to be signed before the election. It will be very touching especially for the airlines. “
After Tuesday’s crash, airline shares rose in pre-market trading. American Airlines, Delta Airlines is United Airlines increased by more than 3%.
On Tuesday, the S&P 500 canceled its gains and closed 1.4% lower after Trump’s Twitter announcement. Shares of retailers plummeted. Other markets were also troubled by the announcement, which came just hours after Federal Reserve Chairman Jerome H. Powell asked lawmakers to do more.
Powell and other economists had long warned that a sustained economic recovery depended on more spending from Washington, and investors had recently begun to become optimistic that one could be imminent after President Nancy Pelosi and Treasury Secretary Steven Mnuchin have resumed potential deal discussions.
The focus on a potential stimulus plan has only intensified as more companies said they would be firing or firing workers and as the number of coronavirus cases has started to rise again.
Investors will be looking for clues as to what the Fed might do in the minutes of the central bank’s September policy meeting, which will be released Wednesday.
The concerns are not unique to the United States. On Tuesday, the European Central Bank’s chief economist warned that the euro zone may not recover from the pandemic until 2022 and that countries dependent on tourism would suffer more if infection rates rose again. The assessment reinforces expectations that the European Central Bank will take additional measures to stimulate the euro area economy when its Governing Council meets on 29 October.
Amazon establishes the rules for digital commerce e Apple favors their apps and services on their devices. Facebook it has a “firmly rooted” monopoly power over social networks. Google has maintained its dominance in research by acquiring information from third parties without permission to improve search results.
These are some of the findings of an extensive report by House lawmakers accusing four of the world’s largest tech companies of abusing their market power. The document, released Tuesday, concludes a 15-month investigation.
To learn more about our coverage of the report:
Domestic lawmakers condemn Big Tech’s “monopoly power”
In a 449-page report presented by the Democratic leadership of the House Judiciary Committee, lawmakers said the four companies have morphed from “messy” start-ups into “the kinds of monopolies we last saw in the era. of oil barons and railroad tycoons. “Lawmakers have argued that companies have abused their dominant positions, setting and often dictating prices and rules for trade, research, advertising, social networking and publishing.
To correct the inequities, lawmakers recommended restoring competition by effectively dismantling companies, encouraging agencies that control market concentration, and raising barriers for companies to acquire start-ups. They also proposed reform of antitrust laws, in the biggest potential change since the Hart-Scott-Rodino Act of 1976 created stronger revisions of large mergers.
12 Allegations in the Damning Report on Amazon, Apple, Facebook and Google
Amazon collects sales and product data from its market to identify the best-selling items, copy them, and offer its competing products, typically at lower prices.
Apple used its App Store control to punish rivals, including ranking them lower in search results, limiting how they communicate with customers, and removing them directly from the store.
Facebook it has become so extraordinarily powerful that internal findings suggest that its greatest competition exists within it.
Google maintained a monopoly on research by acquiring information from third parties without permission to improve search results.
Last month the Department of Defense awarded a handful of unexpected and inexperienced companies multimillion-dollar contracts to manufacture disposable medical gowns to protect frontline workers from the coronavirus pandemic.
Now those companies are in the process of producing tens of millions of dresses in a matter of months.
A deal, for $ 323 million, went to JL Kaya, a small business run by a Florida warehouse, whose only previous federal contract job was a $ 7,296 project to make gauze.
A series of contracts worth $ 194 million went to Health Supply US, a company founded six months ago by a former Trump administration official.
And an $ 88 million contract for clothing went to Maddox Defense, which claims to have done government subcontracting but never handled a major contract on its own.
The administration’s selection of inexperienced companies for crucial jobs has raised questions across Washington. In phone calls and letters, trade groups of major apparel manufacturers have filed complaints with the Defense Logistics Agency. And at least one company has filed a suit contract complaint with the Government Accountability Office, an auditing agency that investigates federal spending.
According to today’s DealBook newsletter, President Trump’s back-and-forth in supporting new stimulus measures could be a high-risk negotiating tactic. Until an agreement is reached, here are some of the groups left in limbo:
Airlines and hotels. An estimated 948,000 travel and tourism workers will lose their jobs without further stimulus, according to Tourism Economics data for the US Travel Association. This adds to the 3.5 million jobs that the industry has already lost.
Restaurants. A survey last month found that 40% of restaurant owners plan to close their premises within six months in the absence of government aid. Three million restaurant employees have already lost their jobs.
State and local governments. According to Moody’s, more than four million public sector jobs could be lost if state houses and municipalities make cuts to offset the decline in tax revenues.
Unemployed people. Temporary layoffs are becoming permanent job losses, the latest figures show, with over seven million people out of work for at least 15 weeks. A sizeable share has relied on stimulus and extra unemployment insurance to pay off mortgages and rents, according to Deloitte, risking wider financial reverberation as savings decline.
The US economy as a whole. “It’s simple: Less fiscal stimulus means more economic suffering,” Gregory Daco of Oxford Economics wrote in a research note. The absence of further tax aid could reduce economic output by 1.5% over the next year, he estimated.