Seven-year-old Hamza Haqqani, a second-grader at Al-Huda Academy, uses a computer to participate in an E-learning class with his teacher and classmates while at home on May 1, 2020 in Bartlett , Illinois.
Scott Olson | fake pictures
Last year at this time, many Americans were taking summer vacations, before their children’s return to school.
Life had the same rhythm that it had for generations, until the pandemic broke it.
Now school is just a consideration for millions of Americans who are literally facing a fiscal cliff in the coming weeks. School decisions are made at the state level, while Congress is considering expanding expanded unemployment benefits, business relief and other pandemic-related help, all of which expires in a few weeks. Those are critical programs for nearly 30 million Americans who are in some form of unemployment.
“These programs were designed for a short-term problem that has become more persistent and worse over time. We know that, and I can’t imagine that they don’t make some kind of bridge for people with benefits that expire until they come up with another. plan, that’s bipartisan, “said Diane Swonk, chief economist at Grant Thornton. “We have a cliff that is falling. We need a bridge or a ladder.”
States are considering ways to reopen schools and how much learning will be in school. For many parents, they face the burden of discovering how to continue working or return to work, while facing children who may only be in the classroom a few days a week, if so.
JP Morgan economists said the fact that many school systems choose staggered schedules and continue distance learning is likely to negatively affect personal income, labor force participation and productivity. States are struggling with the school problem, particularly as the virus continues to spread.
“In addition to the major social consequences, these decisions will be important to the course of the economy in the second half and beyond. Education accounts for about 6% of GDP and the indirect effects touch a much wider swath of the economy,” JP Morgan analysts noted. celebrated.
Many school systems have begun to decide on an approach that combines tiered schedules with continuous distance learning. These changes are likely to have adverse effects on personal income, labor force participation and labor productivity, economists said. The school situation is enormous since two thirds of married couples with children under the age of 18 have both parents working.
“In addition to affecting this hard data, the school situation could weigh on sentiment, as it may be more difficult for consumers to convince themselves that things are returning to normal when home life is far from normal,” economists wrote.
That is just part of the economic considerations that will take place in the coming weeks and that will affect not only everyday American life, but also how the American economy recovers.
Consequences of the CARES Law
Since the economic shutdown in March, businesses have been helped to pay workers, families have been able to delay rent payments, and the government has subsidized unemployment to help individuals and businesses affected by the shutdown of the economy. .
Those programs were made available under the CARES Act and some key programs will expire. Here is a list of them:
- The $ 670 billion payroll protection program expires on August 8 and it is unclear whether it will be extended again. That program was in the form of aid to companies, as long as they used most of it to pay workers, and if not, it becomes a loan.
- The CARES Act also provided an eviction moratorium on most federally-backed rental housing, ending July 24. Starting July 25, tenants can have 30 days to move out unless they reach a payment agreement with the landlord.
- The law also allowed many homeowners with federally backed mortgages to pause mortgage payments, and the mortgage leniency provision expires on August 31.
- The part of the program that now receives the most attention is the enhanced unemployment benefits that have been a lifeline for freelance and part-time workers who do not qualify for state benefits.
The controversial aspect is the additional payment of $ 600 per week for people who receive benefits, and that has become controversial. The National Bureau of Economic Research estimates that two-thirds of workers who collect the supplemental pay now earn more than when they worked. Those payments end July 31.
Republican lawmakers have opposed the extension of those payments, but strategists expect a compromise with a possible reduced payment of possibly $ 300 per week for a few more months.
Evercore’s policy economist Ernie Tedeschi said removing the program would be a major obstacle to growth in the second half. In a note, Tedeschi said the expiration of the Federal Pandemic Unemployment Compensation would result in a 2% smaller gross domestic product by the end of 2020 versus a full extension and in the third quarter, would require six points of annualized growth.
He predicted that 340,000 jobs would be lost per month, and that there would be 1.7 million fewer jobs by the end of the year. If the payment were cut in half, the economic impact would be half, he added. Economists now forecast that the economy slowed by a median of 32.5% in the second quarter and will rebound by 23.5% in the third quarter, according to CNBC / Moody’s Analytics Rapid Update.
“The typical unemployed worker in Mississippi, Louisiana and Arizona would see the deepest cutbacks at FPUC’s full maturity, and benefits would drop more than 70 percent at full maturity,” Tedeschi wrote in a note. “Overall, Nevada would be the state most affected by the full maturity: FPUC payments are currently equivalent to 11 percent of personal income statewide.”
President Donald Trump and Treasury Secretary Steven Mnuchin met Monday with Republican leaders in Congress. Mnuchin has proposed reducing payroll taxes, paid by both individuals and employers to cover government programs like social security. The president, after a meeting with Republican leaders, said Monday that there are about 10 different items in the next package.
Treasury Secretary Steven Mnuchin said Monday that the focus is on children, work and recovery for the next version of the CARES Act. “We want to make sure we don’t pay people more money to stay home than go to work,” said Mnuchin. “We want to make sure that people who want to go to work can do it safely.”
Dan Clifton, chief of policy research at Strategas, said he hopes Congress will find a compromise on the improved payments. He also expects a new stimulus package of $ 1.2 trillion to $ 1.5 trillion to be approved in early August.
“I think if we didn’t have the outbreak in the southwest, people would say less [stimulus spending]But clearly when you’re looking at airlines, restaurant reservations and jobless claims, things have slowed down, “Clifton said.” You need another boost before the election. “
Clifton said he expects votes along partisan lines, before Congress can agree on a package. “It will be an ugly process,” he said, adding that it could go until early August.
Spending to help schools would be a new part of the package, and would allow them to open up if they follow the guidelines of the Center for Disease Control, Clifton said.
Tom Kozlik, head of credit and municipal strategy for HilltopSecurities, said state and local governments may get additional funds to deal with schools on the stimulus bill. He said he expects Congress to award state and local governments around $ 500 billion in addition to the $ 150 billion they have already received.
“If it is much lower than $ 500 billion, that is a problem for state and local governments. The fact is that it is a global pandemic that no state or local government could have prepared for what we have been seeing in the last four years. five months, “he said. “Until April, they fired more people than in the entire Great Recession.” He said that approximately 1.5 local government workers lost their jobs.
Swonk said he hopes Congress will finally pass a bill that will help solve many problems.
“Although we are still chasing a moving target, we show remarkable ability to come together and do something unprecedented in March and early April,” Swonk said. “We need the same unprecedented effort … The good news is that there are incredible advances in science, but it is still an eternity for an economy living with the virus.”
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