With the fate of a federal aid package suddenly doubted by President Trump, economic data on Wednesday showed why the help is so desperately needed.
Personal income fell in November for the second month, the Department of Commerce said Wednesday, and consumer spending fell for the first time since April as declining state aid and a worsening pandemic continued to take a toll on the U.S. economy.
Separate data from the Labor Department showed that applications for unemployment benefits remained high last week and have increased since early November.
Overall, the reports are the latest evidence that the once promising economic recovery is booming.
“We know things are getting worse,” said Daniel Zhao, a senior economist with career side Glassdoor. “The question is how much worse.”
The answer depends heavily on two factors: the path of the pandemic and the willingness of the federal government to provide assistance.
Congress acted after months of delays on Monday and passed a $ 900 billion financial aid package that would provide aid to 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 demanded extensive changes to the bill and doubted he would sign it.
Sir. Trump’s criticism of the relief effort, which he called a “disgrace”, was that it was not generous enough: he called on Congress to provide $ 2,000 per tonne. Person in direct payments to households rather than the $ 600 that was included in the bill.
Many economists consider direct payments to be one of the least effective measures in the package because much of the money goes to households that do not need it. But beyond the benefits of any specific measure, the real risk is that Mr Trump’s comments could delay support or derail it altogether.
The data, released Wednesday, underscored the fragility of the economy. Personal income fell 1.1 percent in November and has fallen by 3.6 percent since July, as the loss of federal aid more than offset rising income from wages.
Consumer spending, which proved robust in the summer and fall, fell by 0.4 percent, which is an ominous sign for small businesses trying to survive the winter. Some of the biggest falls came in categories most exposed to the impact of the pandemic: spending on restaurants and hotels fell 3.8 percent in November, and spending on transportation, clothing and gasoline also fell.
The reduction in expenditure flows into the labor market. Approx. 869,000 people filed new government benefits claims last week. It was down from a week earlier, but is significantly above the level in early November, before an increase in coronavirus cases led to a new round of layoffs in large parts of the country.
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 without congressional action. Some forecasters expect the December employment report to show a net job loss.
“The data simply underscores the importance of fiscal support,” said Aneta Markowska, 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 proposal was smaller than many economists said was necessary to lead the economy through the pandemic and ensure a robust recovery. It will not revive the hardest hit industries or undo the damage after months of lost income for many households.
But the package may be enough to prevent the wave of postponements and minor business failures that many economists warn about are inevitable without it. And that should be enough to avoid a drop in recession, which a growing number of predictors have said probably without a quick injection of federal money.
The stakes are particularly high for the millions of Americans who would be left with an income in some of the worst months of the pandemic.
The aid package adopted this week would extend two emergency programs covering people who are excluded from the normal unemployment system or whose benefits have expired. About 14 million people signed up for the two programs in early December, according to the Department of Labor, though fraud and data collection problems mean the 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. It could push nearly five million people into poverty almost overnight, according to an estimate by researchers at Columbia University.
Carson Noel has spent 35 years in live events, working on cruise ships, on Broadway and at conventions across the country. The pandemic wiped it all out.
“Literally over a one-week period, I saw the next six months of my work disappear,” he said.
Sir. Noel, 51, has reached the end of both his regular unemployment benefits and emergency pandemic benefits, leaving him with no income. The bill passed by Congress would restore his benefits for at least a few weeks, but now they are in doubt.
Although the bill becomes law, Mr Noel said it was too late to save his finances. He has cut back on his purchase bill and moved in with his sister in Tucson to save money, but even with his expenses paired to a minimum, his savings are largely depleted.
“I’m fine for about another month and then I’m in trouble,” he said. “I’m just trying to survive at this point.”
Lawmakers agreed on a plan to issue $ 600 incentive payments and spread a $ 300 federal unemployment benefit over 11 weeks. You can find out more about the bill and what’s in it here.
- Will I receive another stimulus payment? Single adults with adjusted gross income on their 2019 tax return of up to $ 75,000 a year would receive a payment of $ 600, and housekeepers earning up to $ 112,500 and a couple (or one whose spouse died in 2020) would Earn up to $ 150,000 a year get twice as much. 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 drops by $ 5 for every $ 100 in income.
- When can my payment arrive? Finance Minister Steven Mnuchin told CNBC that he expected the first payments to go out before the end of the year. But it will take some time before all eligible people receive their money.
- Does the agreement affect unemployment insurance? Legislators agreed to extend the time people can collect unemployment benefits and restart an additional federal benefit provided on top of the usual state aid. But instead of $ 600 a week, it would be $ 300. It would last until March 14th.
- I am behind on my rental or expecting to be soon. Am I getting any relief? The deal would provide $ 25 billion to be distributed through state and local governments to help tenants who have fallen behind. To receive help, households must meet several conditions: Household income (for 2020) must not exceed 80 percent of the median area income; at least one household member must be at risk of homelessness or housing instability and individuals must qualify for unemployment benefits or have had financial difficulties – directly or indirectly – due to the pandemic. The agreement said assistance would be a priority for low-income families who have been unemployed for three months or more.
Although Mr Trump is signing the aid package, millions of people could temporarily lose their benefits.
By waiting until the last minute to act, lawmakers forced state labor departments – which administer both state and federal unemployment benefits – to prepare for the end of the program. Many states will not be able to reverse the course in time to avoid forfeiture of payments.
State employment officials said they had monitored developments in Washington and consulted with the federal Department of Labor so they could move quickly to reintroduce benefits. But some confirmed that at least a short lapse was inevitable. Any delay in signing the bill will make the delay even longer, said Michele Evermore, senior policy analyst at the National Employment Law Project.
“Every day this pulls out, it’s a day where it’s hard to put food on the table for the kids, it’s another bill that’s been missed, it’s just another crowd,” she said.
Although millions of unemployed workers face the prospect of a gloomy winter, some people and industries are in much stronger shape.
Orders for capital goods – a measure of business investment – rose in November, the trade department said on Wednesday, a sign that large companies are confidential, even when restaurants and other small businesses are struggling to survive.
In addition, household savings are more than $ 800 billion higher than in February before the pandemic crashed the economy. Economists said those savings were likely concentrated among salaried employees who have stuck to their jobs while saving money by cutting travel and leisure expenses. Many have also benefited from the soaring stock market.
High levels of austerity are one of the reasons why many economists have been skeptical about the need for another round of direct support to households, let alone the $ 2,000 demanded by one person from Mr Trump. Such payments can help people who have kept jobs but lost hours or income. But much of the money goes to households that are financially secure and likely to be saved rather than spent.
These savings can help create a speedy recovery when coronavirus vaccines are widely available, allowing Americans to resume travel, attend concerts and gather in bars and restaurants. But the outlook only underscores the need for help to ensure companies reach that point.
“Just a few months down the road, things will get dramatically better, but that’s not a reason to suffer in the meantime,” said Ian Shepherdson, chief economist at Pantheon Economics. “It’s just shooting yourself in the foot to allow companies to stall.”