In short, the U.S. economy is about half-recovered, meaning there is still a long way to go. For weeks, economists and business leaders have warned that the next phase of the recovery will probably be harder and that it would be a huge mistake for politicians to think their job is done.
Even some right-leaning economists were calling for stimulus.
“If there isn’t more stimulus, the recovery is in danger of collapsing. It’s that simple,” said Peter Morici, an economist and emeritus business professor at the University of Maryland who has argued in favor of Trump’s reelection. “Waiting until after the election is waiting too long."
There’s growing concern among economists about a dangerous downward spiral. As businesses cut more jobs, people have less money to spend, which means they buy less at stores, restaurants and other companies, putting those businesses and workers at risk.
Trump has tried to portray this recovery as a rapid bounce back — a “super V” shape — but there’s growing fear it could turn into more of a "W"-shape, with a second dip if layoffs and business closures escalate in the coming weeks.
“Corporations were holding off on laying off employees in the hopes of further stimulus. With this afternoon’s news, I expect that we will see businesses capitulate and begin to announce large scale layoffs," said Peter Atwater, an adjunct lecturer in economics at the College of William & Mary.
This new wave of layoffs will add more to the ranks of the 26 million Americans who were already receiving unemployment compensation. Many unemployed say they no longer have enough money to pay rent, car payments or utility bills, or even buy food. The average unemployment payment fell from $900 a week to just over $300 at the end of July, a sharp reduction that makes it hard for many families to financially survive. As these people stop paying renting and car payments, it hurts landlords, firms and banks waiting for the money.
Mere hours before Trump’s tweet, Federal Reserve Chair Jerome H. Powell urged Congress to act quickly and go big on more aid.
“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.
These fears are growing as the United States remains unable to contain the deadly coronavirus. More than two dozen states have reported increasing cases in recent days. As cases rise, people typically stay home and curtail spending. Rose and Sparrow Salon, a hair salon in Washington, has seen a pickup in cancellations as people get spooked about venturing out, said owner Amie Adkins.
Trump tweeted that “the Stock Market is at record levels, JOBS and unemployment also coming back in record numbers,” but the reality is only about half of the jobs lost in the spring, during the initial spike of the public health crisis, have returned.
Economists have warned for weeks that jobs that have returned are the low-hanging fruit and that getting the rest of the jobs back will be more difficult, much like running the second half of a marathon.
Treasury Secretary Steven Mnuchin told Congress during a recent hearing that another round of stimulus was needed for small businesses and the unemployed.
“We should act quickly because they need the support now,” Mnuchin told the Senate Banking, Housing and Urban Affairs Committee on Sept. 24. "They don’t need the support next year.”
Mnuchin and House Speaker Nancy Pelosi (D-Calif.) were close to a deal for over $1.6 trillion in aid. The major disagreements were over how much help to give cash-strapped states and cities and the unemployed, but many felt a deal was within reach.
The momentum in negotiations came after the September jobs report. Permanent job losses are rising as people have been out of work for half a year. While the nation did add jobs in September, the gains were the slowest since the recovery began, and nearly a quarter of restaurant and hospitality jobs remain wiped out. Further, state government and education lost jobs in September, a red flag of what lies ahead for many states, cities and municipalities that are running low on funding.
Fred Warf and his wife run a small barbershop and hair salon called Hair FX in Chicago. Like many small-business owners, he was hoping for another round of government grants or loans like the Paycheck Protection Program that went to more than 5 million businesses.
Warf did receive a loan over the summer, but that money is long gone. He has been able to reopen, but like many “high-contact” businesses, it’s nothing like before. Some clients still have not returned. His costs are up for all the protective gear and cleaning that he has to do in between clients. And a lot of people are still on edge. The business staff is down to him and his wife, but he’s still struggling to pay his landlord.
“My business has to change to make profitability, but what else can we cut?” said Warf, who is 62. “This was supposed to be my golden years to make money, and it certainly is not.”
Warf says he’s staying in business largely because of his blue-collar clients. They still have to go to work in factories and warehouses, and they are willing to come in for regular haircuts. Yet many of his white-collar Chicago office workers are “leery” of coming in. As winter approaches, he’s worried about whether he can make it without more aid or more customers coming back, which seems unlikely.
The National Restaurant Association warned that 40 percent of restaurants are in danger of closing in the next six months without more aid. The American Hotel & Lodging Association warned that thousands of hotels can’t pay their mortgages right now, putting them in danger of closing. Overall, 21 percent of small business warn they will have to shut permanently if something doesn’t change in the next six months, according to a National Federation of Independent Business survey in August.
Economists, including those at the Fed, have built more government stimulus into their projections about the economic recovery. Without it, they warn the economy is likely to sputter again or even backslide.
“My forecast is, it may take until the end of 2021 to recover all of the economic output losses and three years to recover all the job losses,” said Lynn Reaser, chief economist at the Fermanian Business and Economic Institute at Point Loma Nazarene University. But she predicted a sharp “drop in economic activity” without more government stimulus.
Trump risks the nation backsliding economically, putting more jobs and business in danger of going away. He wanted a V-shaped recovery, but a W is looking more likely.