$900 billion stimulus is second biggest in U.S. history, but it won’t last long enough

As the coronavirus has worsened, so has the economic outlook. Retail sales are sagging, small-business closures are the worst in six months, unemployment applications just hit a four-month high, manufacturing is slowing down, and hunger, especially among families with kids, is at the highest point in this recession. Companies such as Disney and Southwest Airlines are warning of thousands more layoffs, and gyms such as In-Shape Holdings and retailers such as Francesca’s file for bankruptcy.

This latest bipartisan relief package omits direct state and local aid, and it only extends federal unemployment benefits to mid-March, even though millions of people probably will be out of work for far longer. Overall, the bill’s price tag shrank from $2 trillion to below $1 trillion, a product of a legislative compromise that was forged between Democrats and Republicans, who were weary of adding to the nation’s debt load.

“This is better than nothing, and there’s some good news that we’re finally getting a deal,” said Kathy Bostjancic, chief U.S. financial market economist at Oxford Economics. “The bad news is it’s less stimulative than the prior packages, and the relief measures are short-lived.”

Still, many of the 14 economists interviewed by The Washington Post said the package should be large enough to prevent the economy from backsliding further in the coming months. By that time, vaccines should be more widespread, enabling the hard-hit restaurant and travel sectors to begin a robust recovery.

The agreement provides relief for small businesses, the unemployed, public transportation, schools and vaccine distribution. For the worst off, there is new money for rental assistance, food aid and an extra $300 a week in unemployment through mid-March. In addition, the U.S. Treasury will issue $600 payments to most taxpayers living in households that earn $75,000 or less, with an additional $600 per child.

“We have a very tough four to six months coming up before the vaccine becomes widely effective and economic activity recovers,” said Ben Bernanke, who led the Federal Reserve during the Great Recession. “This package is as much about relief and disaster aid as it is about ‘stimulus.’ ”

The key to the economic recovery is how quickly Americans will feel comfortable to return to restaurants, sports venues and travel. Health experts don’t expect widespread distribution of vaccines until the summer or fall, yet much of the latest round of aid, especially for the unemployed, disappears after March.

“The earliest I see anyone thinking about opening is this summer or fall,” said Audrey Fix Schaefer, spokesperson for the 9:30 Club, the Anthem, Lincoln Theatre and Merriweather Post Pavilion, which are live entertainment venues in the D.C. area. “We’re trying to fight for survival.”

The relief package includes $15 billion specifically for live venues that cannot open during the pandemic, but Schaefer worries about whether there is sufficient help for the lighting designers, sound technicians, bartenders and others who have been out of work for months through no fault of their own. Her venues alone have had to lay off close to 2,000 employees.

Nearly 4 million Americans have been jobless for over six months, and those ranks are expected to swell this winter. Already, the level of long-term unemployment is so high that it has only been surpassed in modern history during the Great Recession. History shows these workers struggle to get hired again, and until they do, they are at a high risk of losing their homes and cars and running up burdensome debts.

“If we know anything about recessions, it’s that the recovery, especially for people with lower levels of education, is going to take longer,” said Diane Whitmore Schanzenbach, director of the Institute for Policy Research at Northwestern University. “It’s going to take us a long time to get out of this, and the aid in this bill doesn’t last for long enough.”

Dana Robinson, a single mom of two in Kennesaw, Ga., is among the millions of gig workers struggling to find employment as job opportunities remain scarce.

“I’m in the process of an eviction and having my car repossessed,” Robinson said. “I’m about to lose everything while I wait for aid.”

Robinson, 40, used to drive for Lyft and Uber, and she got work at a construction company outside Atlanta. But the construction work dried up in February and she had to stop driving in March when her children’s school went virtual. Her son has Down syndrome and needs extra attention, making it hard for her to return to work until in-person schooling resumes.

Robinson is among the 12 million renters who have fallen far behind on rental payments and fear they will be evicted soon, according to Moody’s Analytics. The compromise deal includes $25 billion for rental assistance, but it will take time for that money to get out. The bill only extended the eviction moratorium through the end of January, although President-elect Joe Biden is likely to extend it further through executive action.

This latest bill includes $284 billion for small businesses, enabling companies to apply for more loans, and an additional $20 billion for emergency grants. But the application process will take time and could cause more firms to fail. Nearly a quarter of small businesses are shuttered again, a level not seen since June, according to Homebase, which processes data for more than 100,000 small firms.

“Even if Congress gets their act together and passes this stimulus tonight, it won’t make a big impact for weeks,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Biden has made it clear he views this package as a “just a start” and more probably will be needed, but if Republicans retain control of the Senate by winning the two Georgia runoffs, it’s unclear how much appetite there will be for additional spending in the spring.

Economists are especially concerned that the final deal stripped out new funding for state and local governments, which is likely to lead to more job cuts and higher taxes in parts of the country. Even as other parts of the economy have regained some employment, state and local governments were still down 1.3 million jobs in November compared with a year ago, with especially deep cuts to public school teachers and aides.

“Congress leaving out local aid is like the Grinch that stole Christmas,” said Larry Johnson, a commissioner for DeKalb County, Ga., just outside Atlanta. “We have to start looking at areas to cut.”

New Orleans is among the cities seriously debating tax hikes or layoffs, while Los Angeles officials are looking at cutting police. Savannah, Ga., Mayor Van Johnson (D) said his city was hit hard by reduced tourism and has been struggling to keep up with rising homelessness. Savannah just approved a 2021 budget that is 2.5 percent smaller than the previous year.

Arkansas Gov. Asa Hutchinson, a Republican and vice chair of the National Governors Association, said he supported the compromise deal but hoped more could be done for states later on.

“Clearly there needs to be additional assistance for states in a number of different areas,” Hutchinson said. “No governor wants to have a bailout bill for their state, but they do want to have assistance for legitimate pandemic-related costs that have cost their state government enormous amounts of money.”

The final deal gives state and local governments some money for schools and transportation, but it’s far less than what many say is needed.

Congress passed the Coronavirus Aid, Relief, and Economic Security Act — known as the “Cares Act” — in March. Economists credit it with preventing a recession similar to the Great Depression. It pumped over $2.5 trillion into the economy in the spring and summer, but the aid ended too soon, causing nearly 8 million people to fall into poverty in recent months.

This smaller $900 billion package is not expected to be as effective a stimulus as the Cares Act, partly because of its smaller size and partly because of where the money goes.

Much of the funding in the latest deal goes toward stimulus checks and the Paycheck Protection Program for small businesses, two programs the Congressional Budget Office found to have a modest economic boost. Only about 40 percent of Cares Act stimulus checks were actually spent, according to an independent analysis.

“It’s $900 billion, but it’s not a particularly well-designed package,” said Paul Ashworth, chief North America economist at Capitol Economics. “It won’t include any direct transfers to state and local governments, which gets you the biggest bang for the buck.”

Still, there’s growing optimism from the Federal Reserve and many Wall Street economists that the second half of 2021 will see a strong bounce back. Growth is expected to recover fully next year, though Goldman Sachs warns it could take until 2024 before employment is back to pre-covid levels.

In addition to optimism about vaccines and this latest relief bill, Americans have saved over $1 trillion during this crisis, an unprecedented sum during a recession that could flow quickly into the economy.

“We have a lot of people who have continued to earn money and haven’t spent it. That’s why we have a high savings rate. It’s possible that once people feel safe there will be a burst of spending,” said Daniel Bachman, U.S. economic forecaster at Deloitte.

Economists view this latest federal aid package as emergency relief, similar to what’s needed after a hurricane. They say there might be a need in 2021 for more traditional stimulus such as enacting a major infrastructure bill that could boost growth and jobs for years to come.

“You need to go big to get the economy going again,” said Glenn Hubbard, the former chief economist to President George W. Bush and former dean of Columbia Business School. “President Biden will need something like a big infrastructure program that commits to spend money over several years to give people much more confidence that the economy won’t slip back.”

For many small-business owners, relief can’t come soon enough.

Sonya Bykofsky used to run a thriving massage therapy business in Lenox, Mass. But she’s had to shut down multiple times this year, including this month as coronavirus cases spiked again, making it too dangerous to see clients.

Unemployment aid helped her survive the spring and summer, but she recently got a letter demanding all the money be returned because Massachusetts officials said they could not verify her identity. She spent weeks fighting to sort it out and is still in limbo with no income coming in.

“I spent my career helping people with stress and health issues, and now I’m sitting here totally stressed out,” Bykofsky said. “I’m so anxious.”