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Economists: COVID wave stemming recovery

Waning government pandemic aid also has analysts worried

By Ben Casselman

The spread of the delta variant has delayed office reopenings, disrupted the start of school and generally dashed hopes for a return to normal after Labor Day. But it has not pushed the U.S. economic recovery into reverse.

Now that recovery faces a new test: the removal of much of the aid that has helped keep households and businesses afloat for the past year and a half.

The Paycheck Protection Program, which distributed hundreds of billions of dollars in grants and loans to thousands of small businesses, concluded last spring. A federal eviction moratorium ended last month after the Supreme Court blocked the Biden administration’s last-minute effort to extend it. Most recently, an estimated 7.5 million people lost unemployment benefits when programs that expanded the system during the pandemic were allowed to lapse.

Next up: the Federal Reserve, which on Wednesday indicated it could start pulling back its stimulus efforts as early as November.

The one-two punch of a resurgent pandemic and waning aid has led Wall Street forecasters, who were once rosy about the economy’s prospects this fall and winter, to turn increasingly glum. Goldman Sachs said this month that it expected third-quarter data to show a decline in consumer spending, the linchpin of the recovery for the past year. Many economists expect jobs numbers for September to show a second straight month of anemic growth.

Yet economists also see important sources of strength that could help the recovery overcome the latest coronavirus wave and possibly fuel a strong rebound on the other side of it. Few believe the overall economy is headed for another recession, let alone a repeat of last year’s collapse.

“There’s been a clear deceleration, but I would stress deceleration rather than retrenchment,” said Jay Bryson, chief economist for Wells Fargo. “We certainly think that the expansion will continue.”

Rather than posing an immediate threat, what the withdrawal of aid does is leave the recovery with less of a safety net if economists are wrong or if the public health situation worsens — both scenarios that have recurred throughout the pandemic.

“I think one should be concerned that we could see the recovery weaken further and that appetite for putting in place more fiscal stimulus has diminished,” said Karen Dynan, a Harvard professor who was a Treasury official under President Barack Obama.

And even if the recovery stays on course, it will almost certainly leave out some individuals and businesses, who face an increasingly uncertain fall with little government help. Even under the most optimistic scenarios, it will take months for all the workers who lost benefits this month to find jobs.

“Fall will be slower for all of us because we’ve withdrawn the support,” said William Spriggs, a Howard University professor and chief economist for the AFLCIO. “There will be a slowdown in the labor market, and it will be disproportionately Black and brown workers who will have to deal with it.”

The pandemic is not holding back activity as it once did.

The delta variant has caused a clear slowdown in certain sectors, particularly dining and air travel. But so far the decline in activity is nothing like the economywide pullback that the United States experienced in previous waves.

State and local government officials have not reimposed the lockdown orders and business restrictions put in place in earlier waves of the pandemic, and they appear disinclined to do so. Consumers appear to have become more careful, but they have not abandoned in-person activities, and many businesses have found ways to adapt.

Restaurant reservations on OpenTable, for example, have fallen less than 10 percent from their early-July peak. That is a far smaller decline than during the last surge, last winter.

“It has moved down, but it’s not the same sort of decline,” Bryson said of the OpenTable data. “We’re living with it.”

One wild card is how the delta variant could affect the supply of workers. If virus rates remain high, people may hesitate to take jobs requiring face-to-face interaction, particularly where vaccination rates are low. And if schools and day care centers cannot stay open consistently, parents may have difficulty returning to work.

The government is still providing a boost.

Government aid has not dried up entirely. The Federal Reserve said Wednesday that it could soon begin to pare its $120 billion in monthly bond purchases — which have kept borrowing cheap and money flowing through the economy — but it will almost certainly keep interest rates near zero into next year. Millions of parents will continue to receive monthly checks through the end of the year because of the expanded child tax credit passed in March as part of President Joe Biden’s $1.9 trillion aid package.

That bill, known as the American Rescue Plan, also provided $350 billion to state and local governments, $21.6 billion in rental aid and $10 billion in mortgage assistance, among other programs. But much has not been spent, said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution.

“Those delays are frustrating,” she said. “At the same time, what that also means is that support is going to continue having an effect over the next several quarters.”

Household savings could provide a buffer — if they last.

Economists, including officials in the Biden administration, say that as the economy heals, there will be a gradual “handoff” from government aid to the private sector. That transition could be eased by a record-setting pile of household savings, which could help prop up consumer spending as government aid wanes.

A lot of that money is held by richer, white-collar workers who held on to their jobs and saw their stock portfolios swell even as the pandemic constrained their spending. But many lower-income households have built up at least a small savings cushion during the pandemic because of stimulus checks, enhanced unemployment benefits and other aid, according to researchers at the JPMorgan Chase Institute.

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2021-09-25T07:00:00.0000000Z

2021-09-25T07:00:00.0000000Z

https://enewmexican.com/article/281522229236847

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