If there is one image that captures the plight of the United States in full pandemic, it is the one of Americans in cars lining up for hours to get free groceries at a local food bank. The lineup in San Antonio, Tex., saw 10,000 people waiting for handouts.
Thanks to oceans of liquidity provided by the U.S. Federal Reserve, you can get a cheap car loan with virtually no questions asked. But you can’t feed your family, because jobs are disappearing in the millions, while education, housing and medical bills are piling up. And now a new pandemic wave is hitting the country.
The U.S. economy could be barrelling toward outright depression if the infection and body counts continue to rise, and states that opened too quickly lock down their economies again.
Yet the stock market would have you think the V-shaped recovery – a quick, sharp upturn after the quick, sharp downturn – is an article of faith, given all the stimulus measures in place and the alleged resilience of the shopaholic U.S. consumer. The NASDAQ hit a record high this week, and the S&P 500 has recovered most of its March losses and is up almost 6 per cent in the past year.
What planet are these market strategists on? Their bullish outlooks make you wonder whether they ever leave their New York towers and see what’s happening at street level. The view there is not pretty.
The U.S. economy never fully recovered after the 2008 financial crisis and the deep recession that followed. The growth in nominal (not adjusted for inflation) wages in the past decade has been flat, piling more stress on families who were already having trouble keeping their heads above water. Widespread economic insecurity is called precarity capitalism by some economists, a concept Uber drivers and other gig-economy workers know only too well.
Add in U.S. President Donald Trump’s prepandemic effort to dismantle the 2010 Affordable Care Act and you had a recipe for enduring family anxiety.
The pandemic pushed millions of families to the cliff’s edge. Every bit of economic data – GDP, consumer spending, employment, household income – fell at rates not seen since the Second World War.
In response, the Fed hosed out torrents of liquidity to support the markets, and Congress approved a US$2-trillion economic relief package that included US$1,200 cheques sent to anyone making less than US$75,000 a year and the Paycheck Protection Program (PPP) for small businesses – initially worth US$349-billion, later bumped up to US$659-billion.
The spending worked – to a degree. The number of Americans filing for unemployment benefits has fallen for 12 consecutive weeks as the economy reopens. But the latest weekly claims figure, 1.48 million, was bigger than expected and means more than 20 million Americans have lost their jobs during the pandemic.
A survey by Apartment List, an online rental platform, revealed that 30 per cent of Americans missed housing payments – rents or mortgages – in June. That’s up from 24 per cent in April and on par with the May figure. Widespread evictions and a housing collapse are likely scenarios unless governments roll out emergency rental-assistance programs.
Despite Mr. Trump’s relentless optimism about the economy – “This is better than a V. This is a rocket ship,” he said this month – the pain for families seems more likely to get worse in the near term, for two reasons. The first is that the coronavirus infection rate is soaring; the second is that funding for some of the support programs is coming to an end.
Data from Johns Hopkins University showed that almost 40,000 new COVID-19 cases were reported Thursday, a record high. Several states, including Nevada, Texas and Alabama, also reported record highs. The U.S. now accounts for more than a quarter of the 9.8 million cases worldwide, and the Centers for Disease Control and Prevention estimates that only one in 10 cases has been identified. If the CDC is right, 25 million Americans have been infected.
The surge of infections already convinced some governors to suspend the next phase of their reopening plans. If more states do the same, the GDP numbers are bound to be revised downward. Already the International Monetary Fund has lowered its U.S. GDP forecast for 2020, predicting it will shrink 8 per cent; in April, it expected a 5.9-per-cent contraction.
Most of the PPP money is due to run out at the end of this month. When that happens, many businesses will be forced to lay off workers, and some businesses will go bankrupt. The federal unemployment benefit supplement is set to wind down at the end of July. These programs may not be extended. If they are not, the economy faces another downward lurch.
The American family is the big loser in this mess, and massive state intervention may be needed to prevent a recession from turning into a depression. Even then, a depression may be unavoidable if the pandemic becomes a mass killing machine. A V-shaped recovery? When millions of families are missing housing payments and have to line up for hours for free food, we can forget about that scenario for a while.