July 21, 2020

COVID-19 Response Update: Economy


KEY TAKEAWAYS

  • Congress and President Trump provided historic economic relief to American families, workers, and businesses affected by the coronavirus.
  • The economy has begun to recover and regain some of the jobs lost this spring, though unemployment remains high.
  • Widespread testing remains key to helping people go back to work and school as the economy reopens, and Congress is weighing what other targeted policies would aid in the recovery.

Congress passed the Coronavirus Aid, Relief, and Economic Security Act in late March, amid widespread school closures and expanding stay-at-home orders. The law has helped Americans and businesses affected by the coronavirus. States have since reopened at different rates. Recent job gains and revived consumer spending in parts of the economy are signs of recovery, but millions of people are waiting to go back to work or are looking for jobs. While researchers create a safe, effective vaccine, Congress and the Trump administration have worked to make affordable COVID-19 testing available to boost confidence as people return to work and schools decide how to reopen. Congress is deciding what other targeted policies would help the economy reopen and recover.

Economy update

Economy

BUSINESS CLOSURES AND STAY-AT-HOME ORDERS: When Congress passed the CARES Act, nearly two dozen states had issued stay-at-home orders, and more followed. Nonessential businesses closed and economic activity dropped abruptly. As states reopened, the economy created 7.5 million jobs in May and June combined, about one third of the 22 million lost between February and April. In June, the jobless rate was 11.1%, still high historically. Some states concerned about rising cases have halted their reopening plans or renewed restrictions on certain businesses.

Economy

UNEMPLOYMENT ASSISTANCE: In March, as millions of people began to file for unemployment benefits, Congress temporarily expanded unemployment insurance to workers who normally do not qualify and provided an extra $600 per week on top of state benefits. The size of the extra payment means UI can pay workers more than they earned before the pandemic. Businesses have told Federal Reserve banks that high UI benefits, health concerns, and problems finding childcare have made it hard to bring back workers. In June, the Congressional Budget Office estimated that extending the $600 payment for six months likely would result in fewer people being employed in the second half of this year and in 2021. After the $600 benefit expires July 31, state benefits will continue, and so will the CARES Act’s other UI programs.

Economy

HELPING BUSINESSES KEEP WORKERS: As states and cities ordered non-essential businesses to close, small businesses began laying off employees. Congress passed the Paycheck Protection Program to help these businesses keep their doors open and their workers on payroll. Since the PPP started on April 3, more than 4.9 million loans have been approved. In early June, Congress gave businesses more time to spend their loans, so they could reopen based on local government orders and conditions. The program has about $131 billion left, and businesses can apply until August 8. According to one survey, 84% of businesses that received a PPP loan will use up their funds in early August. As of late June, the Census Bureau said 44% of small businesses think it will take more than six months for them to get back to a normal level of activity. Small business optimism improved in June, but the outlook could change based on consumer demand and control of the virus.

Congress also set up an employee retention tax credit to help businesses keep workers on payroll if they had to close under a COVID-19 order or lost a lot of revenue. Small businesses benefit more because they receive the credit based on the full amount paid to an employee, whether the person is working full- or part-time, or not at all. Businesses with more than 100 workers only receive the credit for employees to the extent they are not working due to a shutdown order, a situation less likely as the economy reopens.

Economy

DIRECT PAYMENTS TO AMERICANS: When the CARES Act passed, some workers and families were faced with layoffs, quarantines, and unexpected expenses. In response, Congress provided direct aid to American families. In just two months, the Treasury Department delivered the direct aid, sending 159 million economic impact payments totaling more than $267 billion. The CARES Act targeted this direct cash aid based on income, giving $1,200 to a typical middle class worker and $3,400 for a middle-income family of four. Some studies indicate people largely spent their checks on living expenses.

Economy

MAIN STREET LENDING PROGRAM: Recently, the Federal Reserve launched the Main Street Lending Program to provide credit to help small and midsize businesses recover from the pandemic. Under the program, banks issue businesses five-year loans of $250,000 to $300 million, and the Fed buys most of the loans from the banks to share the risk and provide more lending capacity. It will buy up to $600 billion in loans, and the Treasury is supporting the program with $75 billion from the CARES Act. As of July 16, the Fed said it had bought $12 million worth of these loans. The Fed is working to connect lenders with businesses that would benefit from the program. On July 17, the Fed expanded the program to small and mid-size nonprofits, such as educational institutions and hospitals.

Economy

STABILIZE JOBS IN CRITICAL INDUSTRIES: In March, travel in the U.S. fell sharply because of COVID-19 travel warnings and state stay-at-home orders. The CARES Act provided for up to $46 billion in Treasury loans for airlines and related businesses, as well as businesses critical to national security, contingent on recipients keeping 90% of their payrolls until September 30. Treasury is working with airlines on loan agreements and said it would loan $700 million and take a 30% stake in a trucking firm that moves goods for the military and other clients. The department has approved more than $27 billion in payments out of a separate, $32 billion program to support workers’ paychecks at more than 500 airline and related businesses. As of mid-July, air travel has grown some, but one-third of major U.S. airlines’ planes still are idle, and passenger volumes are down 74% from last year. Pre-pandemic levels of air travel could be several years away. Airlines have encouraged workers to retire early and have said furloughs are possible this fall to reduce costs until demand increases.

Economy

STATE AND LOCAL RELIEF FUNDS: Congress created a $150 billion fund to help states, localities, territories, and tribes cover unexpected COVID-19 related expenses. These include testing, contact tracing, and payroll costs for public health and safety workers. States, cities, and counties that got direct payments have started spending the money in different ways. Treasury guidance advised states to send 45% of their funds to smaller localities, but some towns have said their states are not doing this fast enough. One analysis found states have designated $18 billion – 16% of their funds – to their small counties and towns. Treasury has sent all the payments to states, large localities, territories, and the District of Columbia, and almost all the funds for tribal governments.

Issue Tags: Health Care, COVID-19