(Bloomberg) — The hardest blow from President Donald Trump’s decision to shut down stimulus talks is set to fall on more than 12 million unemployed Americans, who already faced an increasingly tough time getting back to work.Income support for the jobless has been plunging, even as the labor market’s recovery from the pandemic slump runs out of steam. An initial wave of re-hiring by companies has tempered and corporate giants like Walt Disney (NYSE:) Co. and United Airlines Holdings (NASDAQ:) Inc. have announced plans to lay off tens of thousands of workers –- highlighting the risk that many jobs lost during the coronavirus crisis won’t be coming back.
Federal Reserve Chair Jerome Powell sounded the alarm about job prospects for the unemployed, especially low-income Americans, in a speech Tuesday. He said income support has been crucial to the U.S. recovery, and urged the government to keep on spending until the economy is “out of the woods.”That call was effectively rebuffed by Trump hours later, when he said there’ll be no further negotiations on another pandemic relief bill before the Nov. 3 election. U.S. stock markets tumbled on the announcement, before recouping most of the losses early Wednesday.
Money Runs Out
The impact on jobless Americans will likely be more lasting — and as they’re forced to lower spending, it will hurt the wider economy too.
“The marginal households, and there are a lot of marginal households, are going to have to start cutting back pretty soon,” said Joel Naroff, president and chief economist at Naroff Economics LLC.
Additional $600-a-week benefits approved by Congress early in the pandemic expired in July. Trump ordered stopgap payments of about half that amount, but delivery has been patchy and those funds are now running out too.
The president’s move this week means there probably won’t be another package of economic support to fill the gap until even the new year.
Trump signaled Wednesday that he may not have closed the door completely on pandemic spending — tweeting his support for piecemeal measures to help small businesses and airlines as well as another round of stimulus checks — but he didn’t mention the unemployed.
The U.S. jobless rate has fallen by almost half from a peak close to 15% in April, right after the coronavirus struck. But the rebound in labor markets is losing momentum.
Initial jobless claims -– which fell for most of the summer — have held between 800,000 and 900,000 for five weeks. The next weekly report is due Thursday morning.
Another ominous sign was the number of long-term unemployed — those who’ve been out of work for 27 weeks or more — which posted the biggest jump in decades last month, rising by 781,000 to 2.4 million.
Powell said Tuesday that broader measures show unemployment still running at around 11%, and warned that low-income workers have been hardest hit. Employment among the poorest one-fifth of workers is down more than 20% since February, while for the rest of the labor force the decline is only 4%, the Fed chief said.
“The burdens of the downturn have not been evenly shared,” Powell said. “The pandemic is further widening divides in wealth and economic mobility.”
What Bloomberg’s Economists Say
“Extension of small business aid and augmented jobless benefits would have helped guard against substantial downside risks to the economy in the coming months. It would mean the pandemic itself would continue to serve as the primary constraint to spending, not insufficient income.”
–Andrew Husby, Read more here.
As the prospect of more budget support for the economy recedes, at least in the short term, there may be more pressure on Powell and the Fed to take further monetary measures. Options include stepping up bond purchases and targeting them toward longer-duration securities, Evercore ISI analysts wrote on Wednesday.But with interest rates already at zero, economists are skeptical that the Fed has much in its toolkit to deliver an immediate lift, or one that’s capable of targeting the lower-income Americans who’ve been worst hit — one reason why Powell and his colleagues have been so vocal in pleading for fiscal stimulus.
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