The economy’s recent better-than-expected performance is attributable to the federal government’s swift legislative response to the coronavirus, and additional relief could be needed to keep things moving, according to economists interviewed by the Washington Examiner.
“The reason we aren’t repeating the Great Depression is because this time, fiscal and monetary policies reacted swiftly and forcefully,” said David Wessel, a senior fellow in economic studies at the Brookings Institution and director of the Hutchins Center on Fiscal and Monetary Policy, via email.
Doug Holtz-Eakin said he believes the federal government’s quick action likely kept the economy from plunging into the abyss. “We can’t know for sure, but I have to expect it was awfully important,” he said.
Holtz-Eakin, president of the center-right economic think tank American Action Forum and a former director of the nonpartisan Congressional Budget Office, said that the legislative responses were effective because they were “enormous” and enacted “really fast.”
Between March and April, four bills were enacted that totaled $2.4 trillion, according to the CBO. They provided aid to businesses and individuals while granting the Federal Reserve the authority to secure loans for struggling companies.
The aim of the effort was to help businesses and individuals survive the economic shutdown that was created to slow the spread of the coronavirus, but it also apparently provided a launchpad for the economy that few expected would occur so quickly, at least in the short term.
“No one expected the May response,” Holtz-Eakin said, referring to last month’s reports on the unemployment rate and retail sales.
The May jobs report stunned observers, with the unemployment rate dropping to 13.3% while 2.5 million jobs were added to payrolls.
“It was definitely good news and maybe the biggest surprise that anybody can remember,” said Federal Reserve Chairman Jerome Powell while testifying at a Senate Banking Committee hearing on June 16.
May’s unemployment rate was originally projected to jump from 14.7% in April to roughly 20%, and 8 million jobs were projected to be lost. That didn’t happen.
Retail sales were another bright spot that exceeded expectations. The Census Bureau reported on Tuesday that retail sales increased by nearly 18% in May. Economists predicted that sales would rise by 7.4%.
Last month’s jump in sales beat the previous record set in 2001, when retail sales increased 6.7% in October as people resumed shopping after 9/11. May’s increase also came on the heels of retail sales contracting by a record 14.7% in April and 8.3% in March.
Holtz-Eakin said that good economic news was expected in June and not May.
“They expected that to happen in June. But the fact that the government moved so quickly and got so much out is part of the surprise,” he said.
Stan Veuger, a resident scholar at the right-leaning think tank the American Enterprise Institute, attributed much of the rebound to the CARES Act, which was enacted in March and provided $1.7 trillion in aid. He said the bill was instrumental to the economy outperforming expectations.
“We mailed everyone checks, people unemployed … received more money than before they were laid off, and we sent a ton of money to businesses, so it’s hard to overestimate the [benefits] from the CARES Act,” he said, adding that reopening the economy helped “a bit.”
“I think the reopening helped, but it cannot explain the full extent of the recovery,” he said.
Veuger pointed to the recent retail sales report that highlighted several sectors, such as department stores and restaurants, continuing to suffer because of social distancing protocols that keep these businesses from operating at full capacity and stop people from venturing outside.
“As long as the virus is out there and at an elevated rate, which is true in a lot of states, it’s going to affect people’s behavior, and they aren’t going to restaurants,” he said.
Until people do feel safe by the coronavirus being under control, Wessel said he thinks additional legislation will be needed to keep the economy moving forward.
“It would be imprudent for Congress and the White House to sit back and say, in effect, ‘Let’s see how the economy does before we inject another dose of fiscal medicine.’ That’d be economic malpractice,” he said, adding that additional legislation is needed because the economy is nowhere near pre-pandemic levels.
“Employment, retail sales, and nearly everything else is still well below where it was in February before the pandemic hit,” he said, adding that “just because we had a surge in hiring and consumer spending doesn’t mean these trends will continue.”
Holtz-Eakin said he sees the need for another relief bill but that he thinks its aim should be getting people back to work as opposed to providing relief to workers forced out of their jobs, which was the primary goal of the CARES Act.
“There are things to do, but they don’t need to do another CARES Act,” he said, adding that the $600 unemployment bonus payment included in the bill should not be extended beyond its July 31 expiration date.
The CARES Act provided a $600 weekly payment to jobless workers beyond the regular benefit. More than 60% of jobless workers receiving the $600 payment collect more from unemployment benefits than they earned working, according to research by Holtz-Eakin’s group, the American Action Forum.
“That $600 payment was an ideal policy if the goal was to make sure that someone didn’t go to work,” he said.
The Senate is unlikely to extend the provision and is looking at providing a bonus for new hires, which could be included in the chamber’s next coronavirus relief package.
