The coronavirus recession is unavoidable now: restaurants are closed, no one is traveling or going to the gym or seeing basketball games. A new report by the Economic Policy Institute estimates that the economic shock of the coronavirus outbreak will likely claim 3 million jobs by this summer.
The scope and size of Washington’s fiscal response to the looming economic crisis will be paramount in determining the ability of Americans to bounce back financially after coronavirus cases have peaked. Treasury Secretary Steve Mnuchin requested $850 billion in fiscal stimulus from Congress on Tuesday, $250 billion of which would be in the form of checks to Americans.
Washington passed an $8.3 billion spending package two weeks ago to combat the coronavirus. But as millions of Americans began to adopt “social distancing” and states such as New York began to restrict group gatherings, the need for more emergency aid became evident. The House and Senate passed an economic relief bill, and is on its way to the president.
While President Trump sounds optimistic that the U.S. economy will bounce back – “We’re going to win and I think we’re going to win faster than people think, I hope,” he said Tuesday – severe job loss is happening. The Economic Policy Institute’s projection that 3 million jobs will be lost by summer already accounts for the implementation of a moderate fiscal stimulus.
“We’re affirmatively telling many people their job is not to go to work over the next couple of months...in the name of public health. [The federal government needs] to finance their consumption over that period,” said Josh Bivens, director of research at the Economic Policy Institute. “People who can effectively telework that can blunt the shock... [but] there’s a really large segment of our economy that utterly requires face to face contact that the public health response says we’re not allowed to do and they are just completely out of luck.”
‘Fastest job loss we’ve ever seen’
Unemployment fell back to 3.5% in February, a 50-year low. A 3 million job loss by July sets the U.S. labor market back to the era of the Great Depression, says Bivens. “What people should brace for, if it happens, is...the fastest job loss we’ve ever seen, at least since the Great Depression,” he said. The 3 million estimate would exceed losses during the worst months of the Great Recession, according to EPI.
The coronavirus economic shock upends typical recession expectations. The manufacturing sector usually gets hit hard by the first wave of job losses, according to EPI. In this instance, the coronavirus is threatening workers everywhere, especially low-wage workers in service industries. The fact that many of those workers are living paycheck to paycheck means the ripple effect of the first wave of job losses will be far worse in a coronavirus recession, according to EPI.
Unemployment claims have spiked significantly throughout the country this week. Over 48,000 people have sought unemployment benefits in Ohio this week, a major jump from the 1,825 who did the week prior. In just one day, roughly 70,000 people applied for jobless benefits in Pennsylvania, more than 6 times the amount that did the previous week. In New York, the surge in people seeking unemployment benefits has been causing the state’s labor website to crash over the past couple of days. More than 21,000 people have called asking for jobless benefits compared to 2,000 last week and website visits rose to 110,000, from 42,000 last week.
$1,000 government check for every American adult, $500 for every child
Washington has the power to reduce job losses for millions of Americans, but it depends on the size of its stimulus response. The government should focus on maximizing income support by expanding safety net programs such as food stamps, Medicaid, and unemployment insurance, according to EPI.
Direct cash payments to households would also be needed to help combat the significant drop in household consumption over the next couple of months, says Bivens. He suggests that the government cut a $1,000 check for each adult and $500 for every child to be paid out monthly until the economic shock subsides.
States dealing with public health demands will also need fiscal stimulus from the federal government. EPI suggests that all state Medicaid spending be paid for by the federal government to alleviate the financial costs of the coronavirus outbreak.
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