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American Economy: Joe Biden doesn’t have a magic wand to fix it

But many economists and business leaders agree that no state aid for individuals and small businesses can fix the economy until the root cause of the problem – the Covid-19 pandemic – is defeated. At best, the combination of the $ 900 billion plan adopted in December and that plan by the newly elected president can only help the economy keep pumping water until the pandemic is contained.

“It’s a very big package, but it’s about helping the economy hang together, as it can hang together until the end of the pandemic,” said Mark Zandi, chief economist at Moody’s Analytics.

Zandi and other economists believe that gross domestic product, the country̵

7;s broadest measure of economic activity, could jump if Biden receives his full package soon after taking office. But job growth will be far more subdued.

The US economy lost 22 million jobs in March and April and ended the year with another 140,000 net jobs. Even with 12.5 million jobs restored between them, the number of employees in the United States decreased by nearly 10 million during the pandemic. Moody’s predicts that these jobs will not be fully restored by 2022, even if Biden receives his full package.

“We are getting big GDP growth up front, but it will take 18-24 months to get all those jobs back,” Zandi said. “Many people simply cannot return to work until the pandemic appears in the rearview mirror.”

Solve the main problem

Unfortunately, the message from public health experts is clear: the pandemic will get worse before it gets better.
New cases, hospitalizations, and deaths in the United States are at or near record highs. This could lead to renewed orders to block and close businesses in many parts of the country, as imposed in other countries, especially with a new, more transmitted version of the virus. The vaccine, which is now being introduced, is expected to reach a sufficient population to allow most Americans to return to normal life by the summer at the earliest.
This may mean a slower-than-expected return to economic activity, such as eating out and traveling. The economy lost its job in December for the first time since April due to huge unemployment in the leisure and hotel business, as well as in restaurants and bars. The stimulus could help many businesses and individuals survive the storm, but will not save everyone from going out of business, experts say.

“In fact, you can’t do much in terms of economic policy when the pandemic continues to rage,” said Andrew Hunter, a senior U.S. economist at Capital Economics. “Things are looking good for a while later this year, but it depends primarily on the release of vaccines so that things can return to normal.”

Biden has vowed to step up vaccination efforts, which he says are a “dark failure so far”. But it is not clear how successful these efforts will be and how much they could be delayed by the resistance of many members of the public to be vaccinated.

“We have a slower-than-expected spread of vaccines, and that really weighs on expectations when we return to pre-pandemic life,” Ed Moya, senior market analyst, told Onada.

Uncertainty for business

And this uncertainty creates problems for businesses, from retailers to airlines and banks, as they try to make plans, even businesses that have done well so far.

“The rules of the game continue to change. For a business person, this is astounding,” Zandi said. “They will not feel that the shore is clean. This uncertainty will suppress the ability to go out and expand and grow. They will not go out and hire more people because they are not sure what lies ahead. It will be I don’t think it’s like a light switch. ”

Also, preventing the rapid boost of the economy from the proposed stimulus package is the fact that many companies have already closed permanently due to the crisis and thus permanent job losses are increasing. The money Biden is offering as direct aid to most households in the United States, and extended and extended unemployment benefits will help many families overcome the crisis, but will not repair all the damage done to the economy during the crisis.

“It takes much less time to destroy jobs than it does for the economy to create new jobs,” said Joel Praken, chief US economist at IHS Markit. “I’ve seen estimates that a third of jobs lost never they will not return to their previous form. “

Will it be enough?

The money Biden offered was only slightly less than that passed under the CARE Act in March, but Biden made it clear last week that this was only the first step in what he would ask Congress to do. This first package is more than twice the stimulus package of $ 787 billion adopted shortly after Barack Obama and Biden took office in 2009, in the depths of the Great Recession.

The money in the CARE Act, passed at a time when more than 22 million Americans are losing their jobs, has had a significant impact on the economy and the ability of households to overcome the economic crisis. Despite the economic turmoil, the number of individual bankruptcy claims fell by 31% in 2020, to its lowest level since 1987, according to an analysis by the American Bankruptcy Institute.

When will Americans see the help from Biden's relief proposal?  It depends on Congress

“Ongoing government assistance programs, moratoriums and lender deferrals have helped families and businesses overcome the economic challenges of the last year stemming from the Covid-19 pandemic,” said ABI CEO Amy Quakenbos.

But this support, as important as it was, did not end the economic crisis. Even if millions of those on temporary redundancies are called to work, there are still 10.7 million people looking for a job they can’t find, another 2.2 million who want a job but have stopped looking for a job. 2 million who only work part-time even though they want a full-time job. Returning to work will take time, even with the incentive, experts say.

And much of that help is over or will soon be over. It is unclear how much of the $ 1.9 trillion Biden wants will be approved by a divided Congress. Prakken of IHS Markit estimates that the final amount is likely to be closer to $ 1 trillion. Moody’s estimates it could be closer to $ 750 billion.

But the key to when the economy recovers probably depends less on the stimulus than on the state of the pandemic, and when life returns to something that feels more normal for businesses and their customers.

“Mortality is likely to peak probably sometime in late winter / early spring,” Praken said. “It will probably be somewhere in the second half of the year for people to feel more comfortable going out.”

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