And they are not alone in finding a Biden win translating into brisker growth: Economists at Goldman Sachs and Oxford Economics conclude that even a version of Biden’s program that would have to shrink to pass the Senate would mean a faster rally back to prepandemic conditions.
All three see the higher government spending a Biden administration would approve — for emergency relief programs, infrastructure, and an expanded social safety net — giving the economy a potent injection of stimulus.
The economic outlook is strongest if Democrats sweep Washington, the Moody’s team finds.
“In this scenario, the economy is expected to create 18.6 million jobs during Biden’s term as president, and the economy returns to full employment, with unemployment of just over 4%, by the second half of 2022,” they write.
Real after-tax income for the average American household would increase by $4,800 by the end of Biden’s first term, the economists project, and house prices and homeownership rates both would nudge upward.
On top of the extra federal spending, an all-Democratic government would translate into stronger growth by reengaging in freer trade and loosening immigration restrictions. And while a Biden administration would seek to offset some of his proposed $7.3 trillion in new spending over the next decade with $4.1 trillion in higher taxes on corporations and the wealthy, “the net of these crosscurrents is to boost economic activity,” the economists write.
But the Moody’s team sees that blue-wave scenario as only the third most likely election outcome. The most likely, they say, sees Biden winning while Republicans retain their hold on the Senate; narrowly less likely is a Trump win and that same split control of Congress he confronts now.
The economists don’t perceive major differences in economic outcomes under those scenarios, since a split Congress would choke off the ability of either Trump or Biden to advance major tax or spending changes.
A Republican sweep — which they give a 5 percent probability, their least likely election outcome — would produce the weakest economic returns. In this case, they see 11.2 million jobs added in Trump’s second term, with the economy only returning to full employment in the first half of 2024. With a weaker job market, the average American household’s real after-tax income wouldn’t budge much.
Trump has not spelled out his second-term economic agenda in detail, so the Moody’s team is left to fill in gaps by making some assumptions based on the president’s first-term record. They see the president offering “much less expansive support to the economy from tax and spending policies.” Specifically, they conclude Trump would more than offset a trillion-dollar infrastructure proposal with cuts to other non-defense programs; and he would cut taxes but also effectively raise them elsewhere by resuming his trade war with China.
Altogether, the team sees a Democratic sweep yielding 4.2 percent annual growth over the next four years; the pace slows to 3.5 percent over that time if Biden faces a split Congress. Meanwhile, a Republican sweep would mean 3.1 percent growth, while an election that preserves the status quo would mean a 3.2 percent pace.
A scaled-back Biden plan would still goose growth, the Oxford and Goldman analyses find.
The Oxford team divided Biden’s tax and spending proposals in half to reflect the difficulty of guiding an ambitious package through a closely divided Democratic Senate. They find such a plan would still provide a “welcome boost” to the recovery, delivering 5.8 percent economic growth next year. By they end of Biden's first term, they project disposable income would be 2 percent higher and the jobless rate would approach 3 percent.
Goldman economists, like those at Moody’s, see Biden presiding over a burst of new spending, higher taxes, and lower tariffs. And like those at Oxford, they assume only half of Biden’s program would become law, “since Democrats will at most have a narrow majority in the Senate and would therefore have to win over their most centrist members,” they wrote in a note earlier this week.
Either way, they see a Biden administration providing a meaningful lift to economic growth. They plot it here in a graph that depicts their expectations for the so-called output gap, which measures the difference between the economy’s potential under Biden against what it would otherwise achieve.
Beneath these headline numbers, “lower- and middle-income households benefit more from Biden’s policies than Trump’s,” Zandi and Yaros of Moody’s write. “Biden ramps up government spending on education, healthcare and other social programs, the benefits of which largely go to those in the bottom half of the income distribution. Meanwhile, he meaningfully increases taxes on the well-to-do, financial institutions and businesses to help pay for it. Trump largely does the reverse.”
Stocks eke out small gains.
But it was a wild session: “The Dow Jones Industrial Average closed 52.31 points higher, or 0.2 percent, at 26,815.44. At its session low, the Dow was down 226 points. The 30-stock Dow was also up more than 300 points earlier in the day. The S&P 500 climbed 0.3 percent to 3,246.59 and the Nasdaq Composite advanced 0.4 percent to 10,672.27,” CNBC's Fred Imbert and Pippa Stevens report.
“Apple and Microsoft shares rose 1 percent and 1.3 percent, respectively, to lead tech higher. Alphabet shares gained nearly 1 percent and Amazon advanced 0.7 percent. Netflix was up 0.5 percent and Facebook advanced 0.2 percent.” (Amazon CEO Jeff Bezos owns The Washington Post.)
Stocks see third-worst weekly outflow on record. “While traders were buying the dip just a week ago, sentiment has switched firmly to risk off in recent sessions, with pessimism seeping in about the prospect of further fiscal stimulus to support the world’s biggest economy,” Bloomberg's Namitha Jagadeesh writes. “The S&P 500 Index is on course for its fourth straight weekly drop, its longest losing streak in more than a year. That’s fueling U.S. equity underperformance versus Asia and Europe in September.”
Latest on the federal pandemic response
Pelosi abruptly shifts course, restarts stimulus push.
Democrats are narrowing the size of their plan after months: “House Speaker Nancy Pelosi has more recently focused on an additional $2.2 trillion in aid — a figure Republicans say is still too high. But in a meeting with House Democratic leaders Thursday she said the new bill would be around $2.4 trillion, because of urgent needs arising from restaurants and airlines. Details were provided by a person familiar with the meeting who spoke on the condition of anonymity because it was private,” Erica Werner and Rachael Bade report.
“Pelosi asked key committee chairs to get to work on putting together the bill. The package is expected to include stimulus checks, aid for airlines, small businesses, cities and states, as well as rental assistance, unemployment assistance and funds for election security and the U.S. Postal Service.”
- Behind the change: “Pelosi had resisted demands from moderates in her caucus to narrow her ambitions or put a new bill on the floor, insisting that Republicans should be the ones to offer new concessions. But her stance has become increasingly problematic as endangered House Democrats have demanded action, with some threatening to sign on to a Republican-led procedural move to force a vote on a small-business relief bill.”
U.S. at risk of repeating mistake following the 2008-2009 financial crisis of ending economic support too early. “In the view of many analysts, a premature pullback in government support back then led to a grinding recovery that left legions of would-be employees out of work for years,” the New York Times's Ben Casselman and Jeanna Smialek write. “In recent weeks, prominent economists have warned that both the United States and Europe, where many early responses are drawing to a close, were at risk of repeating that mistake by cutting off government aid too soon.”
Another 870,000 workers filed for jobless benefits last week.
Unemployment claims continue to remain high: “That figure is up slightly from the 866,000 applications processed the week before, according to the Labor Department,” Eli Rosenberg reports.
“Another 630,000 people had new claims processed for Pandemic Unemployment Assistance, the program for self-employed and gig workers, down from 675,000 the week before … The total number of people claiming unemployment insurance dropped to 26 million for the week ending Sept. 5 — a drop of more than 3.5 million. The new claim numbers have come down gradually from their peak in March but remain at historically high levels.”
More from the United States:
- Anthony S. Fauci says Americans will still need to heed health measures: "It is not going to eliminate the need to be prudent and careful with our public health measures,” Fauci, the nation’s top infectious-disease specialist, said of what a vaccine will mean and why people will still need to wear masks.
- Farm workers are covid's unseen hot zone: “At the height of harvest season, growers supplying some of America’s biggest agricultural companies and grocery store chains flouted public health guidelines to limit testing and obscure coronavirus outbreaks, according to thousands of pages of state and local records reviewed by The Post,” Laura Reiley and Beth Reinhard report.
- Pac-12 announces return of fall football season: “All five of college football’s major conferences now plan to play this fall despite the Pac-12 and Big Ten’s previous decisions against holding a fall season," Emily Giambalvo, Matt Bonesteel and Des Bieler report.
From the corporate front:
- Publicly traded firms paid dividends, bought their own stock after receiving PPP loans: “The findings reinforce long-standing concerns that the Paycheck Protection Program, an emergency stimulus fund offering low-interest, forgivable loans to businesses with fewer than 500 employees, was accessed by financially healthy companies that could have gone without a bailout,” Aaron Gregg reports.
- Target plans to hire 130,000 workers for the holiday season: “Twice as many Target employees will be dedicated to same-day curbside and in-store pickup of online purchases compared with the first half of the year. Distribution centers will have more workers than last holiday season to make sure stores don’t run out of popular items,” CNBC's Melissa Repko reports.
- Costco gets another boost: “Food is selling so fast that profit got a boost from the lack of loss due to spoilage, Costco financial chief Richard Galanti told reporters. E-commerce sales nearly doubled in the latest quarter, rising 93 percent from a year ago, a big jump for a company that has been slow to embrace online sales and has built its business around bulk packages," WSJ's Sarah Nassauer reports.
- United will be the first U.S. airline to offer testing: “Starting Oct. 15, United customers traveling between San Francisco and Hawaii will have the option of taking a covid-19 test before they board their flight. A negative result would allow them to skip the mandatory 14-day quarantine requirement for travelers headed to the state,” Lori Aratani reports.
Fed's Lael Brainard is seen at the top of Biden's Treasury Secretary list.
If named, she would be the first woman to hold the post: “The more provocative choice of Sen. Elizabeth Warren (D-Mass.) hasn’t been ruled out but is far less likely, and other possible names are being discussed for the top finance job if Biden wins November’s election ...,” Bloomberg News's Saleha Mohsin and Jennifer Epstein report.
“The former vice president wants to make a historic choice for the job that has always been held by a White man … But he also wants a Treasury pick who would be universally accepted and Brainard, a member of the Fed’s board of governors, could fit that bill. She wouldn’t upset Wall Street or progressives, two constituencies that Biden would want on his side in working toward an economic recovery and avoiding Democratic infighting.”
- More names: “Ex-Fed official Roger Ferguson and Atlanta Fed president Raphael Bostic, both Black men, are also seen as possibilities for the job, people familiar with the matter said. Former Treasury Deputy Secretary Sarah Bloom Raskin is said to be lobbying for the role, they said… Biden’s Wall Street donors have been talking up potential candidates from their own ranks, such as BlackRock’s Larry Fink or Blackstone’s Tony James."
Whole Foods founder says “the world is fat.”
John Mackey says consumers are still struggling with making the right choices: “In some sense, we’re all food addicts. We love things that are rich, that are sweet. We love ice cream,” Mackey told the New York Times's David Gelles. “I don’t think there’s an access problem. I think there’s a market demand problem. People have got to become wiser about their food choices. And if people want different foods, the market will provide it.”
Google will help employees pay off student loans: “Starting in 2021, Google will match up to $2,500 per full-time employee per year toward their student loan payments, John Casey, Google’s director of Global Benefits told employees …,” CNBC's Jennifer Elias reports.
“The new perk comes as the company, whose famous in-office perks aren’t available during remote work, competes against tech companies like Facebook and Apple for young tech talent. The cost of living is particularly expensive in the San Francisco Bay Area,where the bulk of tech companies and employees are headquartered.”
E.W. Scripps agrees to buy ION Media for $2.65 billion: “Warren Buffett's Berkshire Hathaway plans to make a $600 million preferred-equity investment in Scripps to help finance the purchase of closely held ION, Scripps said … Berkshire will also get a warrant to purchase as many as 23.1 million Class A Scripps shares at $13 apiece,” WSJ's Dana Cimilluca and Cara Lombardo report.
“Scripps investors cheered the news, with its shares rising 7.6 percent to close at $11.27 after earlier soaring as much as 33 percent. The deal will transform Cincinnati-based Scripps, which has a market value of about $850 million.”
Blue health insurers reach tentative antitrust settlement for $2.7 billion: “The antitrust claims were first brought in 2012 as a proposed class action on behalf of employers and individual policyholders with Blue coverage. The suit attacked a setup that has endured for decades, under which companies typically hold exclusive rights to the Blue Cross and Blue Shield names within a certain territory,” WSJ's Anna Wilde Mathews and Brent Kendall report.
“The suit alleged that the insurers illegally conspired to divvy up markets and avoid competing against one another, driving up customers’ prices.”
Mortgage rates rise amid positive housing news: “According to a Freddie Mac report released Thursday, the average for 30-year fixed rate reached 2.90 percent, up from 2.87 percent with an average 0.8 point. (A point is a fee borrowers pay, in addition to the interest rate, that equals 1 percent of the loan.) The rate was 3.64 percent a year ago,” Michele Lerner reports.
“The 15-year fixed-rate average reached 2.40 percent, up from 2.35 percent with an average 0.7 point. It was 3.16 percent a year ago. The five-year adjustable rate average reached 2.90 percent, down from 2.96 percent with an average 0.2 point. It was 3.38 percent a year ago. Existing-home sales rose 2.4 percent from July to a seasonally adjusted annual rate of 6 million in August. Sales as a whole rose year over year, up 10.5 percent from July 2019.”
Dennis Kelleher: An empowered conservative majority on the Supreme Court would help industry kneecap regulatory agencies.
The Better Markets president weighs in on a remade court's impact on business. We wrote yesterday that if Trump's pick is confirmed, business interests could pile up wins. Kelleher, whose group advocates stricter regulation of the financial industry, emailed in response: "The huge sleeper issue that is going to prevail in the coming 6-3 court and change the contours of not just the law, but many aspects of American life itself, in a way not seen since the New Deal (barring an expansion of the court or some other action that changes the coming 6-3 composition) will be the disempowerment and dismantling of the administrative state …
“The key power for that to happen comes from a key case creating the “Chevron doctrine,” which enshrined deference to administrative agencies (which are supposed to have the necessary expertise in their area to interpret and apply Congress’ broad statutes). The right-wing and Corporate America hates that and weakening/killing it has been a long-term project. A 6-3 court changing that will, therefore, be able to impact everything from dangerous toys and environmental protection to workers’ rights and protecting investors and financial consumers.”
From Bloomberg's Joe Weisenthal:
- A House Ways and Means subcommittee holds a hearing on restaurants during the pandemic.