Since this Trump rally in Wisconsin in August, job growth has slowed and layoffs have mounted in the absence of new federal stimulus programs.Credit…Brendan Smialowski/Agence France-Presse — Getty Images
Here is the situation the U.S. economy faces, with a month to go before Election Day: Job growth is stalling. Layoffs are mounting. And no more help is coming.
American households and businesses have gone two months without the enhanced unemployment benefits, low-interest loans and other programs that helped prop up the economy in the spring. And now, after President Trump’s announcement Tuesday that he was cutting off stimulus negotiations until after the election, the wait will go on at least another month — and very likely until the next presidential term starts in 2021.
It could be a dangerous delay.
Already, many furloughs are turning into permanent job losses, and major companies like Disney and Allstate are embarking on new rounds of layoffs. The hotel industry is warning of thousands of closures, and tens of thousands of small businesses are weighing whether to close up shop for good. An estimated one of every seven small businesses in the United States had shut down permanently by the end of August — 850,000 in all — according to data from Womply, a marketing platform. The deeper those wounds, the longer the economy will take to heal.
“The risk to waiting is that we may find ourselves in a place where we’re unable to turn back, we’ll hit a tipping point,” said Karen Dynan, a Harvard economist and Treasury Department official during the Obama administration.
Jerome H. Powell, the Federal Reserve chair, echoed those concerns in a speech on Tuesday, arguing that failing to act quickly carried risks for the economy.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth.”
The failure to provide that assistance will ripple through the economy.
“The economy needs another round of fiscal support with aid to households, small and midsized firms and states,” said R. Glenn Hubbard, a Columbia University economist who was chairman of the White House Council of Economic Advisers under President George W. Bush. “Failing to act will have real economic consequences.”
Stock indexes, which had risen in recent days on signs that negotiations might be making progress, dropped sharply after Mr. Trump’s announcement. Several major Wall Street banks had said in recent days that they would downgrade their growth forecasts if talks stalled.
Mr. Trump may have been listening. In a series of tweets late Tuesday, he urged both houses of Congress to “IMMEDIATELY” revive a lapsed loan program for small businesses and to approve funds for airlines and another round of stimulus checks. It remained unclear if his tweets reflected a willingness to restart negotiations.
The gridlock in Washington is a reversal from the spring, when fear of an imminent economic collapse led Congress to vote overwhelmingly to approve trillions of dollars in aid to households and businesses. The effort was largely successful: Households began spending again, companies began bringing back workers, and a predicted tidal wave of evictions and foreclosures mostly failed to materialize. The unemployment rate, which reached nearly 15 percent in April, fell to 7.9 percent in September.
But most of the aid programs expired over the summer, and in recent weeks economic gains have faltered. Economists across the ideological spectrum agree that the loss of momentum is likely to get worse if more aid doesn’t arrive soon.
“We had a bridge which took us till about September, and now the question is do we complete the bridge or don’t we?” said Raghuram G. Rajan, a former chief economist of the International Monetary Fund who is now a professor at the University of Chicago. Without more help, he said, “basically anybody who was on that bridge falls off a cliff.”
European stocks were dipping lower on Wednesday as investors absorbed the news that more U.S. fiscal stimulus may be unlikely anytime soon. But Wall Street futures turned upward, indicating that stocks would rise when trading begins, after President Trump tweeted overnight that he wanted to revive some stimulus measures. Asian markets closed little changed.
The moves followed a sharp reversal in financial markets Tuesday, after President Trump unexpectedly announced the end of negotiations with Democrats over a new economic aid package. Mr. Trump later appeared to backtrack and said on Twitter that he would be willing to approve more stimulus checks and spending on programs for airlines and small businesses.
The Stoxx Europe 600 index slipped 0.1 percent. U.S. Treasury bonds fell, with the 10-year yield rising 0.03 percentage points, as some traders moved away from the safe-haven asset. The dollar was little changed.
“We are back in familiar gridlock territory,” said Susannah Streeter, an analyst at Hargreaves Lansdown. “There is little doubt a stimulus plan will eventually get through the Senate, but given we are inching ever closer to the vote, it is looking more unlikely to be signed off before the election. It is going to be very touch and go for airlines in particular.”
On Tuesday the S&P 500 erased its gains and ended 1.4 percent lower after Mr. Trump’s announcement, on Twitter. Shares of airlines and retailers slumped. Other markets were also roiled by the announcement, which came just hours after Federal Reserve Chair Jerome H. Powell had appealed to lawmakers to do more.
Mr. Powell and other economists had been warning for some time that a sustained economic recovery depends on more spending from Washington, and investors had recently begun to grow optimistic that one might be forthcoming after Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin resumed discussions over a potential agreement.
The focus on a potential stimulus plan has only intensified as more companies, said they would lay off or furlough workers, and as the number of coronavirus cases began to rise again.
Investors will look for clues about what the Fed might do next in the minutes from the central bank’s September policy meeting, which will be published on Wednesday.
The concerns aren’t unique to the United States. On Tuesday, the European Central Bank’s chief economist warned that the eurozone might not recover from the pandemic until 2022 and that countries that depended on tourism would suffer the most as infection rates rose again. The assessment reinforces expectations that the European Central Bank will take additional measures to stimulate the eurozone economy when its Governing Council meets on Oct. 29.
In July, tech chief executives including Jeff Bezos of Amazon spoke at a House antitrust hearing.Credit…Pool photo by Graeme Jennings
Amazon sets the rules for digital commerce, and Apple favors its own apps and services on its devices. Facebook holds “firmly entrenched” monopoly power over social networking. Google has maintained its search dominance by grabbing information from third parties without permission to improve search results.
Those are some of the findings from a sweeping report by House lawmakers accusing four of the world’s largest tech companies of abusing their market power. The document, which was released on Tuesday, concludes a 15-month investigation.
Read more of our coverage of the report:
House Lawmakers Condemn Big Tech’s ‘Monopoly Power’
In a 449-page report that was presented by the House Judiciary Committee’s Democratic leadership, lawmakers said the four companies had turned from “scrappy” start-ups into “the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.” The lawmakers said the companies had abused their dominant positions, setting and often dictating prices and rules for commerce, search, advertising, social networking and publishing.
To amend the inequities, the lawmakers recommended restoring competition by effectively breaking up the companies, emboldening the agencies that police market concentration and throwing up hurdles for the companies to acquire start-ups. They also proposed reforming antitrust laws, in the biggest potential shift since the Hart-Scott-Rodino Act of 1976 created stronger reviews of big mergers.
12 Accusations in the Damning Report on Amazon, Apple, Facebook and Google
Amazon harvests the sales and product data from its marketplace to spot hot-selling items, copy them and offer its own competing products, typically at lower prices.
Apple has used its control over the App Store to punish rivals, including by ranking them lower in search results, restricting how they communicate with customers, and removing them outright from the store.
Facebook has grown so overwhelmingly powerful that internal findings suggest its greatest competition exists within itself.
Google maintained its search monopoly by grabbing information from third parties without permission to improve search results.