Economy’s Life Support Runs Out as Stimulus Hopes Fade
Extra Unemployment Lapses, Evictions Persist, Economic Forecasts Dim
As hope fades that Congress will pass a second COVID-19 relief bill before year’s end, Americans are increasingly feeling the harsh realities of the pandemic’s economic impact. Extra unemployment aid is running out, some renters are facing eviction despite a nationwide moratorium, and economists are taking a more grim view of the recovery’s prospects.
Until now, the $2 trillion CARES Act and other emergency relief measures had cushioned the blow on vulnerable U.S. households, paying most Americans a one-time stimulus check of as much as $1,200 in the spring, providing an additional $600 a week to those collecting unemployment benefits through July, and then offering an extra $300 a week for six weeks in most states.
- Extra unemployment benefits for many of the nation’s 26 million jobless workers are lapsing
- Congress remains stalemated on a second round of relief, and analysts do not expect one this year
- Eviction filings in some cities have continued despite a CDC moratorium
- Goldman Sachs cut its fourth-quarter estimate for GDP growth in half
But as the additional benefits expire, more than 26 million people are still out of work, and economists see more suffering ahead without new federal aid. Even as lawmakers on both sides of the aisle call for some form of new assistance, prospects for a second aid package dimmed this week, analysts said, and one new survey suggested 61% of Americans either expect to run out of savings by the end of the year or have already used them up.
“The CARES Act was so large that it gave many households a buffer that has enabled them to get through in the weeks following its lapse,” said Jason Furman, an economics professor at Harvard and former chief economist under President Barack Obama. “But households are rapidly running through their additional cushions and the economy will hit an unnecessarily worse place.”
Goldman Sachs on Wednesday lowered its forecast for growth in fourth-quarter GDP to 3% from 6% because of the dim prospects for any additional aid this year.
“We think it is now clear that Congress will not attach additional fiscal stimulus to the continuing resolution,” Goldman economists wrote in a research note that also raised 2021 GDP growth estimates to 5.8% as a “partial offset.” “This implies that after a final round of extra unemployment benefits that is currently being disbursed, any further fiscal support will likely have to wait until 2021.”
Meanwhile, cases of COVID-19 were trending upward in 22 states and territories this week, and a new nationwide eviction moratorium in place as of Sept. 4 appears to only be partially effective.
An order from the Centers for Disease Control and Prevention, which stemmed from an August action from President Donald Trump, suspends evictions for renters who can’t pay their rent because of lost income through the end of the year, citing the risk of spreading the virus. It’s meant to more broadly protect renters after the CARES Act more narrowly applied a moratorium (which expired in July) on tenants in federally-funded or backed housing. A number of state- and local-level bans on evictions had also been imposed, but many of those had expired by summer.
Princeton University’s Eviction Lab, which tracks eviction filings in select cities, found that total eviction filings for 16 cities dropped by half the week of Sept. 6—the first week the CDC order was in place—and rebounded the following week, but there have been major variations across cities.
“The CDC order appears to have moved the needle—in some sites more than others—but it has not stopped the flow of new eviction cases,” researchers at the Eviction Lab said in a report Tuesday.
The extra $300 in pandemic-related unemployment aid, authorized by Trump in August, was retroactive to Aug. 1 and lasted for no more than six weeks, meaning the last qualifying week ended on Sept. 5, even if some have yet to dole out a lump sum. According to the Federal Emergency Management Agency, 49 states took advantage of the program, each setting up their own schedule for distribution.
The end of the supplements has left unemployed people getting regular state benefits averaging $305 a week nationwide in August, according to the Department of Labor.
“The CARES Act was supposed to buy time for a robust public health response to tackle the virus and get it under control until we have a vaccine,” said Olugbenga Ajilore, a senior economist at the Center for American Progress, a liberal think tank. “We obviously didn’t tackle the public health, and now the money has run out, but the virus is still running rampant.”
A survey of 1,500 people by Clever, an online real estate referral service, found 74% of respondents have sought out additional income, taken on credit card debt, dug into savings, or cut spending during the pandemic to cover their living expenses. The survey, conducted on Sept. 9, also showed 61% of respondents either expect to run out of savings by the end of the year, have already used them up, or never had any to begin with.
Impact of CARES Act
The CARES Act had a profound impact on the economy, according to several studies. The poverty rate actually declined by 2.3 percentage points between January-February and April-May, a study by the Brookings Institution found.
And unemployment benefit recipients who sharply curtailed their spending at the start of the pandemic increased their spending by 93% between mid-April and the end of July, according to a report from data company Cardify. Since that peak, it’s fallen 9%, returning to roughly a pre-pandemic level.
Indeed, the macroeconomic benefits have had ripple effects beyond those who are unemployed, supporting jobs and incomes for tens of millions of workers and businesses, Harvard’s Furman said during testimony before a Congressional committee in June.
“The CARES Act played a critical role in that rapid but still very much incomplete rebound in the economy since May,” Furman said during an email interview Wednesday. “Households generally saw increases in disposable personal income which has driven a V-shaped recovery in retail sales, supported a return to work for many workers, and helped overall economic growth.”
Attempts to pass a second stimulus package have failed because of partisan disagreements on the scope. At a congressional hearing Tuesday, U.S. Secretary of the Treasury Steve Mnuchin and Federal Reserve Chairman James Powell said they supported a second stimulus package.
“I think the next package should be much more targeted,” Mnuchin said. “It should be focused on kids and jobs, and areas of the economy that are still hard hit, particularly areas such as the travel business and others, restaurants.”
Republican and Democratic lawmakers blamed each other for delays. Rep. Juan Vargas, a Democrat from California, noted that the HEROES Act, which promised $3.4 trillion in aid, passed the House in May this year.
“[What] I heard today is that Congress should pass the second CARES Act,” Vargas said. “We passed it. It’s called the HEROES Act and it’s languishing over in the Senate…The Senate didn’t pass a thing.”
Rep. Patrick McHenry, a Republican from North Carolina, argued that Democrats have caused a standstill through their unwillingness to compromise.
“I would commend [Mnuchin] for being willing to negotiate where others have walked away, like Speaker Pelosi and Leader Schumer, and saying $3 trillion is all we are going to accept and nothing less is completely unacceptable,” said McHenry.
The fallout from the stalemate will likely hit low-income households, people who live in rural areas, disadvantaged racial and ethnic groups, and elderly people the most, Ajilore of the Center for American Progress said. He predicts a “K-shaped recovery” where high-income households would do well, but lower and middle-income families struggle.
Furman agreed certain groups would be harmed more than others.
“The unemployed and the most vulnerable would suffer the most if there is no second stimulus,” he said. “But in the process there would be collateral damage for everyone—including the stock market, the overall growth rate, and others that would lose their jobs.”
Halley Bondy contributed to this story.