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President Donald Trump abruptly pulled the plug on negotiations for another coronavirus spending package on Tuesday, all but ending the prospect of additional federal relief before the November election.
The announcement on Twitter sparked a sharp drop in the stock market, with the Dow Jones industrial average immediately erasing gains finishing the day 376 points lower. The delay in the arrival of pandemic aid raises the prospect of more small business failures, particularly among restaurants. The National Restaurant Association said 40% of restaurant owners would go bankrupt within the next six months without government assistance.
Many economists have long urged Congress to pass another aid bill to keep individuals and businesses afloat with the pandemic showing few signs of ending soon. Around 26.5 million people are still receiving unemployment benefits, and permanent job losses are mounting.
Without additional aid, experts say millions of jobless Americans could have their finances devastated, and set back an already shaky economic recovery.
“This is incredibly cruel and also just terrible economics,” Heidi Shierholz, the director of policy at the left-leaning Economic Policy Institute, told Business Insider. She pointed out people on unemployment typically draw around 40% of their lost wages.
The size of the average weekly unemployment check is around $330, an amount varying greatly from state to state.
“They’re meager benefits and people can’t exist on them,” Shierholz said. “It’ll mean more people dropping into poverty and people making terrible choices between rent, medicine, and food on the table.”
Michele Evermore, a policy expert at the National Employment Law Project, told Business Insider that hardship will likely increase among the unemployed without another government rescue package in the short-term.
“It’s disappointing so many people are gonna have to suffer despite the fact we were close to getting something,” she said.
Evermore warned some states are attempting to recoup money they accidentally overpaid jobless people, which in many cases has already been spent. She said a legislative fix was included in the Democratic aid proposal.
The US economy has only regained about half the jobs it lost in March and April at the height of the pandemic shutdown. But it is now at a higher risk of backtracking as more families pull back on their spending, said Ernie Tedeschi, a policy economist at Evercore ISI.
“Even if we don’t see backtracking, I think its likely we’ll see much slower growth than we would have otherwise,” Tedeschi told Business Insider. “That’s a headwind we don’t need right now because growth is already slowing.”
The latest jobs report showed the US economy added 661,000 jobs in September, less than half the prior month’s figure and by far the smallest monthly increase since the labor market bottomed out in April.
“As job growth slows down, that means it’s gonna take longer and longer for us to fully recover from this recession,” he said. “But for individual families, it’s going to be damaging anyway.”
Federal Reserve Chair Jerome Powell stepped up his warnings of a weak recovery on Tuesday, all but urging Congress to pass another federal aid package.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said at an event hosted by the National Association for Business Economics.