Wait to Stimulate? A Tough Bargain for Americans

  • The U.S. economy remains 10.7 million jobs below its pre-pandemic level.

  • The CARES Act, a stimulus measure passed by Congress that has aided the recovery, has seen most of its funds run it out.

  • Washington remains deadlocked in approving a new package, leaving swaths of the American workforce in limbo.

Anxiety hit US markets this week as negotiations on a new stimulus package appeared to fizzle out. On Tuesday, the White House signaled that they would wait until after election day to move forward on further stimulus measures. However, this move was quickly (albeit partially) walked-back on Wednesday shortly after equity markets responded with, to put it mildly, a severe lack of enthusiasm.

It now appears that the talks may restart— aided in part by the chorus of economists and business leaders emphasizing the need for government support to avoid severe damage to the economy. The supplemental unemployment benefits included in the CARES act, the initial stimulus package, expired on July 31st. As large employers such as American Airlines threaten mass layoffs, there is an even greater urgency for lawmakers and the administration to consider as they move forward with talks.

As the pandemic rages into its seventh month, so does the US Recession. Since February, over 10.7 million[1] people have lost their jobs and remain unemployed. The downturn thrust roughly two-million more workers into part-time work. Meanwhile, millions more who have lost their jobs have dropped out of the Labor Force altogether. For many, news of a rarely seen Washington compromise on a fiscal stimulus bill in March was lifesaving— literally. The bill included:

  • Provisions aimed at addressing supply shortages and access to health services.

  • U.S. Treasury-backed loans to Small Businesses and States, including Airlines.

  • Direct stimulus relief to American workers, including supplemental unemployment benefits.

As the recovery began in June, many of these policies played a hand in sustaining growth. Emergency loans lent out to Small Businesses helped them adjust to COVID-related restrictions, supplemental unemployment benefits helped support those still jobless, while a moratorium on evictions kept vulnerable tenants from losing their homes. Regrettably, most of these provisions lapsed at the start of August, and distressed signals from American Industries have already started flashing. Airlines furloughed nearly 32,000 workers this past week, citing a lack of financial support from as the primary factor.

Before the bailout sirens ring, let's contextualize the Airlines and other sectors around the economy's current set of circumstances. These are large industries that employ and provide medical coverage for numerous workers, who have had their consumer demand base directly dampened by COVID-19. The pullback in economic activity extends way beyond vacations and business trips. Citing Google Mobility data, trips to workplaces, transit hubs, and to retail and recreation places remain significantly below pre-pandemic levels. The impact stretches to adjacent places of commerce, such as restaurants, bars, and shopping districts. Office restrictions have led to layoffs in custodial and security work, while school closures continue to create a complicated series of choices for families to make, as seen in the astounding number of women who have dropped out of the workforce entirely during the pandemic.



In many ways, the US economy needs relief over stimulus. COVID-19 cases show the signs of a second wave, while consumer sentiment remains far below the highs seen before the pandemic. Without an inflection in both of these trends, the demand cushions needed to restart economic growth will simply fail to materialize. While the Federal Reserve has extended its monetary policy tools to address the crisis by committing to low real interest rates for the foreseeable future, such mechanisms are limited in scope. Some economists have raised concerns about the potential for a K-shaped without targeted fiscal assistance to American workers, a development that could exacerbate growing wealth inequality. On Tuesday, Minneapolis Federal Reserve President Neel Kashkari cautioned that “If we don’t support people who have lost their jobs, then they can’t pay their bills and then it ripples through the economy and the downturn is much worse than it needs to be.”[2]

As Washington struggles to cut a deal under the cloud of an election season, the US economy is left to weather the storm. Like all recessions, some businesses and jobs will be permanently lost due to Covid-19. No measure can prevent this entirely. Still, with support from the federal government, millions of households can stay afloat until there is a plausible and safe path of returning to normal. While enumerable aspects of the ongoing public health crisis remain beyond congressional control, the task of assisting in-need American workers sits at the cross-section of achievable and required.

[1] Bureau of Labor Statistics [2] Retrieved from CNBC on October 7th, 2020

© 2020, Chandan Economics LLC

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