10 Signs We Need Congress To Pass More Stimulus

A speedy round of extra stimulus funds, as the economy continues to recoil due to the coronavirus, seems less and less likely every day, based on recent comments from Republican leaders.

Treasury Secretary Steven Mnuchin, in testimony on Wednesday to the Senate Committee on Small Business said that the need for a new stimulus bill wouldn’t be discussed until after aid towards small businesses has time to circulate through the economy. “We want to be careful at this point, seeing how much money is in the economy,” said Mnuchin, according to CNBC. “A lot of the money is still not in it.”

Mnuchin refers to the loan programs passed by Congress to propel small businesses through this tough time. The majority of the stimulus checks, which most people received in April, have passed along to those at home.

Along with the delay in discussing more stimulus, the White House and Republicans have signaled its not interested in extending enhanced unemployment benefits beyond July 31. The CARES Act, passed in March, provided those on unemployment $600 extra per week through the end of July. But some Republican Senators have argued that it could keep people from returning to work, leaning on signs that the market has improved enough to avoid the second footing of unemployment checks.

The Democrat-led House passed a $3.5 trillion stimulus bill in May, but the Republican-led Senate won’t likely pass that version of the bill.

The White House has said a second stimulus bill for consumers will be needed, but early indications leaned towards tax incentives. Yesterday, Mnuchin said that President Donald Trump was considering supporting another round of stimulus payments, although no decision has been made.

It seems, much of the hesitation on aid has to do with the better than expected unemployment numbers for May and a stock market that, despite yesterday’s 7% decline, had recently passed early March, pre-shelter-in-place highs.

Such a stance, though, ignores many other signs that continue to flash red, indicating the time for stimulus is now. For those that need the cash immediately and for those that have painstakingly saved for a future without work, delaying the inevitable could set them back for decades.

The unemployment numbers aren’t rosy. Despite unemployment numbers coming in better than expected through the month of May, with the rate just over 13%, the number of people still requiring unemployment remains at historic highs. The reason the rate provided hope is because economists expected a number nearer to 20% and its a fall from April numbers which reached 14.7%.

Even under those rates, African American workers have an even higher level of unemployment at 16.8% and 20.9 million total people continue to collect the checks.

Also, due to a mislabeling error in the May numbers, the true unemployment rate is likely over 16%, meaning the unemployment rate didn’t fall in May.

Rents are about to become a problem. In a survey by the Urban Institute conducted between late March and early April, 47% of renters aged 18-to-64 weren’t able to pay rent, utilities or were food insecure. Nearly 25% of African American and Latino renters couldn’t pay rent in May.

This has – and will continue – to impact people of color more. An area of the economy deeply hit by the COVID response has been the service industry. About one-in-four Black and Hispanics work in the industry, according to Kaiser Family Foundation. Yet, they don’t have a safety net. A minimum of one-in-five Black and Hispanics had low-wage jobs heading into the recession and 35% of Black people and 38% of Hispanics worried about paying monthly bills. And they’re also the two groups that have suffered higher rates of infection and death from COVID.

People are saving less… It’s not a surprise in a recession that people concerned about their jobs, rent, expenses would put less towards retirement. TD Ameritrade surveyed 1,008 of adults with at least $10,000 in investable assets, finding that 14% of workers have reduced contributions to retirement accounts. It’s problematic, however, since the U.S. workforce was already woefully lagging in retirement savings, prior to the COVID recession. It’s leaving 71% of respondents expecting this recession to have a significant or somewhat of an impact on their retirement plan.

…and actively tapping long-term resources. This has led to the use of the 401k and IRA as a resource to pay bills. The CARES Act made it much easier to tap 401ks and IRAs, without penalty. But it is a last resort solution, since by doing so, you’re reducing the ability for your retirement accounts to grow. Yet, 22% of retirement plan participants expect to or have tapped the 401k or IRA as a resource for cash during the pandemic, according to Transamerica Center for Retirement Studies. Millennials, in particular, have or expect to do so at a rate of 33% among those surveyed.

That money is simply paying bills. Of those that have pulled out funds for retirement, 52% of respondents to a survey by MagnifyMoney, did so simply to pay for things like groceries, housing payment or other bills.

The Fed continues to feed the market. Despite the hesitancy of Congress to pass a stimulus bill that directly helps savers and people at home, the Federal Reserve hasn’t shown any hesitation in providing such stimulus in the market. Fed Chairman Jerome Powell has said that rates won’t increase any time soon, and the Fed continues to purchase Treasuries and mortgage backed securities to ensure credit markets continue to function while committing billions more to support businesses and local governments.

Meanwhile, the cost of food, rent, healthcare and other goods are rising. One reason that the Fed keeps the interest rate near zero is because the inflation numbers remains steady, below 2%. But that’s not the case for every item within the inflation number. And the items showing increases include many of the necessities that people have tapped retirement accounts to afford. While the consumer price index has only moved up 0.1% over the past year, the price for food-at-home increased by 4.8%, which is the highest rate in eight years. Beef prices jumped 10.8%, medical care increased 4.9% and rent and housing inched forward 0.2%.

The impact of COVID will linger. According to the Congressional Budget Office, COVID will lead to a loss to the U.S. economy of $7.9 trillion over the next decade, or a 3% decline from the size the CBO projected in January. Part of that has to do with the fact, 100,000 businesses have already been forced to close due to the virus.

And COVID cases are rising again. Even as states have moved to open up their economies, the virus hasn’t suddenly disappeared. Texas saw a record amount of cases in one day, with over 2,500 new instances on Wednesday. Arizona has seen cases double in the past two weeks, with nearly 30,000 in total as hospitals sit at 83% capacity. And 14 states are still seeing cases rise.

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