Congress Must Act to Continue Soft Landing

The Economist July 11th 2020 pp17-18. United States|Economic Policy| “The covid bonus” “America’s huge stimulus is having surprising effects on the poor” getty images

For Americans who lost jobs as a result of COVID-19 but were able to qualify for unemployment insurance (UI) are actually making more on average than under prior employment. This surprising outcome is the result of government COVID payments of $1,200/month (Single) or $2,400/month (Family) plus due to the extra $600/week in UI. Thse UI will run out end of July and if a new package is enacted the rate may be lower at $300/week. This critical support has allowed the poverty rate to continue its precipitous decline dating back to 2013. When looking at the disposable personal income forecast (DPI), should congress act with a new stimulus, one model predicts that DPI level will remain unchanged. This model uses both household earnings and stimulus funds as inputs for calculating DPI. Having a steady DPI, in this COVID-19 downturn, is an improvement over a falling DPI experienced in prior recessions. Despite this apparent success, America’s poverty rate remains higher than that of any other rich country.

Having said this about those households receiving UI, those not receiving UI are suffering shortfalls including food insecurity. Since the start of the pandemic, families missing meals increased by two million. African-American households have been hit hard with an estimated 20% twenty percent now being food-challenged. Other indicators of trouble ahead include reports of being unable to pay rent and an increasing number of browser searches using the word "bankrupt".

“The authors of a recent paper from Columbia University show that poverty could rise sharply in the second half of the year, which seems likely if unemployment has not decisively fallen by then”. If congress continues to act, unemployment should remain below 25%.