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

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But many economists and business leaders agree that no amount of government aid to individuals and small businesses can restore the economy until the root cause of the problems – the Covid-19 pandemic – is overcome. At best, the combination of the $ 900 billion plan passed in December, and this plan of the president-elect, can only help the economy kick waterfalls until the pandemic is under control.

“This is a very big package, but it’s all about holding the economy together and holding it 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 country’s broadest measure of economic activity, could rise if Biden gets his full package soon after taking office. But job growth will be much more muted.

The US economy lost 22 million jobs in March and April and ended the year with an additional 140,000 net job losses. Even with the 12.5 million jobs recovered in the meantime, the workforce of US employers remained nearly 10 million lower during the pandemic. Moody’s predicts that those jobs won’t be fully restored until 2022, even if Biden gets his full package.

“We’re getting a lot of GDP growth up front, but it will take 18 to 24 months for all those jobs to return,” Zandi said. “A lot of people can’t go back to work until the pandemic is in the rearview mirror.”

Solve the underlying problem

And 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. That could lead to renewed lockdown orders and company closures in many parts of the country, as has been mandated in other countries, especially with a new, more transmissible version of the virus. The vaccine being rolled out now is not expected to reach enough of the population to return the majority of Americans to normal life until summer at the earliest.
That could mean a slower-than-hoped-for return to economic activity, such as eating in restaurants and traveling. The economy lost jobs in December for the first time since April due to massive unemployment in recreation and hospitality businesses, as well as in restaurants and bars. The incentive could help many businesses and individuals weather the storm, but it won’t save them all from bankruptcy, experts said.

“There’s really not much you can do from an economic policy perspective if the pandemic continues to rage,” said Andrew Hunter, senior US economist for Capital Economics. “Things will look good for a while later this year, but it depends first of all on whether vaccines are marketed so things can get back to normal.”

Biden has pledged to step up vaccination efforts that he said have so far been “a dismal failure.” But it’s not clear how successful those efforts will be and how much they could be slowed down by resistance from many members of the public to get vaccinated.

“We have a slower-than-expected vaccine roll-out, and that really weighs on expectations when we return to pre-pandemic life,” said Ed Moya senior market analyst for Onada.

Uncertainty for companies

And that uncertainty is causing trouble for businesses, from retailers to airlines to banks, as they try to make plans, even those that have done well so far.

“The rules of the game are constantly changing. It’s overwhelming for an entrepreneur,” Zandi said. “They will not feel that the coast is clear. That uncertainty will stifle the ability to go out and expand and grow. They are not going to hire more people because they are not sure what to expect in the future. future. This is going to be a process. I don’t think it’s like a light switch will turn on. ”

Also preventing the economy from getting a quick boost from the proposed stimulus package is the fact that many companies have already closed down permanently due to the crisis, increasing permanent job losses. The money Biden proposes as direct aid to most American households and extended and extended unemployment benefits will help many families weather the crisis, but it will not repair all the damage done to the economy during the crisis.

“It takes a lot less time to destroy jobs than it does for the economy to create new jobs,” said Joel Prakken, chief US economist for IHS Markit, “I’ve seen estimates that a third of lost jobs will never come back. in their previous form. “

Will it be enough?

The money Biden proposed is only slightly less than what was passed under CARES law in March, but Biden made it clear last week that this is just the first step of what he will be asking Congress to spend. This first package is more than twice the $ 787 billion stimulus package passed shortly after Barack Obama and Biden took office in the depths of the Great Recession in 2009.

The money in the CARES Act, passed at a time when more than 22 million Americans lost their jobs, had a remarkable impact on the economy and households’ ability to weather the economic crisis. Despite the economic turmoil, the number of individual bankruptcy filings fell 31% in 2020 to its lowest level since 1987, according to an analysis by the Equip for the American Bankruptcy Institute.

When will Americans see the help of Biden's aid proposal? It's up to Congress

“Ongoing government assistance programs, moratoriums and lender deferments have helped families and businesses face the economic challenges of the past year from the Covid-19 pandemic,” said Amy Quackenboss, ABI’s general manager.

But that support, important as it was, did not end the economic crisis. Even as millions of people are being called back to work with temporary layoffs, 10.7 million people continue to look for jobs they cannot find, 2.2 million more want a job but have stopped looking, and 6.2 million who even work part-time. although they want a full-time job. According to experts, it takes time to get them back to work, even with the incentive.

And much of that help has run out or will run out shortly. It’s not clear how much of the $ 1.9 trillion Biden is asking for will be approved by a divided congress. Prakken of IHS Markit thinks the final amount will likely be closer to $ 1 trillion. Moody’s estimates it may be closer to $ 750 billion.

But the key to the recovery of the economy is likely to depend less on the stimulus than on the state of the pandemic and when life returns to something more normal, for businesses and their customers.

“Deaths are likely to peak sometime in late winter / early spring,” Prakken said. “It will probably be sometime in the second half of the year when people will be more comfortable going out.”

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