No more, "We're getting close" from main combatants US Treasury Secretary Mnuchin and Speaker of the House Nancy Pelosi, and no more mentions of an "imminent" deal in the media…because whilst it has been many months in the making, all 5600 pages of the new US fiscal stimulus bill has finally arrived!
We're still to get a clever acronym for the new deal struck by US lawmakers on Monday, but it has been commonly referred to as the "Coronavirus Relief Package", and may end up being referred to as CARES II. "CARES" of course, stands for the Coronavirus Aid, Relief, and Economic Security Act which was passed by Congress with overwhelming bipartisan support in March.
This update takes a very quick look at the new package, and what it may mean for markets (all figures are in US dollars).
CARES II is approximately US$892b, or about 4% of US GDP. This is about half of the $2.2t spent on CARES I.
CARES II is part of a broader spending package passed Monday aimed at funding the US government until September 20, 2021. This "other bit" is worth about $1.4t, and will fund the day-to-day workings of the entire US Federal Government for this period. Whilst this sounds big, it consists primarily of extensions to current policies, and should not have a meaningful macroeconomic impact.
- $600 per person payment to individuals (including children) earning up to $75,000 and up to $150,000 for couples (cost $166b). This means the typical family of four will receive $2,400. According to Mr Mnuchin, the checks could start hitting bank accounts "as early as next week".
- Small-business aid, including forgivable loans as part of the Paycheck Protection Program. This allows businesses with fewer than 500 employees and with substantial revenue loss, to cover their payroll, rent, and utilities (cost $284b). Note, to date, the US Government has issued around $525b in forgivable PPP loans.
- Revival of the supplemental unemployment benefit for millions of unemployed Americans at $300 a week through to March 14, 2021 (cost $120b).
- Extension of the expanded eligibility (PUA) criteria for unemployment benefits, and the continued extension of the duration of benefits (PEUC). These measures enable a wider range of unemployed and under employed Americans claim benefits, and also extends the maximum period they can claim them 50 weeks, from 39 weeks (cost $120b).
- Education-related grants paid to the states (cost $82b).
- Substantially increased funding for Coronavirus testing and tracing. Also, increased spending on research and for vaccine production and distribution (cost $69b).
- Support for transportation industries including $15b for airlines, $14b for public transport, and $10b for state highways (total cost $39b).
- Rental assistance and the extension of the eviction moratorium through to January 31, 2021 (cost $25b).
- Broadband improvement and deployment (cost $7b). (Note: Apart from the investment in broadband and transport systems, there were no major infrastructure spending initiatives in this bill.)
- Hospital grants (cost $3b, notably lower than the $35b provided in CARES I).
- Other additions to the spending bill include legislation relating to "surprise medical billing" and extensions of several expiring or expired tax provisions (i.e., the so-called “tax extenders”).
Notably, as expected, CARES II lacks state and local fiscal aid and liability protections. This item was a major sticking point in getting the deal done. The Democrats still want it, and will try to get it done under a Biden administration. Given the Republicans are still likely to control the US Senate after the January 5 runoffs for the two remaining senate seats, these measures are probably a long way off.
Impact & Outlook
The US economy will undoubtedly need more support if it is to bounce back, and to bounce back strongly from this crisis. There are still over 20 million Americans who are underemployed at the moment. Both politicians and the Federal Reserve desperately want to address this situation. The risk of not doing so, is a generation of displaced and disenfranchised citizens, just as the country could claim it had finally recovered from the GFC.
This package is a welcome development and it goes part of the way to addressing the major dislocations the pandemic has inflicted on the US economy and its people. Its release is timely, as the resurgence of the virus across the nation has clearly undermined recent economic data. This data strongly suggests that the US is heading for at least a double dip recession. However, the size of the package is at the lower end of most expectations, and, with Congress likely to be split along party lines (the Democrats have control of the House of Representatives and the Republicans control of the Senate), one has to assume based upon the recent track record, that further stimulus will also be a drawn out affair.
It is probably an overstatement to say that the US economy is currently on life-support, and that this package simply keeps the power going to the respirator. But clearly there remains a huge task in reviving the patient fully. Whilst we're on the medical analogy here, it is worth stating the importance of the smooth rollout of vaccines in 2021, and perhaps also, the importance of their widespread acceptance. At the end of the day, COVID caused this crisis, and defeating it is probably going to have a greater impact on resolving the crisis than anything Capitol Hill or the Fed can provide.
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