Coronavirus Will Scar the Economy for Years

By Michael Rainey

Unemployment Drops, but There's Trouble
Ahead

The U.S. economy added 4.8 million jobs in June, the Department
of Labor announced Friday, marking the second month in a row with
better than expected employment data. The jobless rate fell to
11.1%, down from 13.3% in May and 14.7% in April, as employers
continued to reopen their businesses and call back furloughed
workers.

President Trump was quick to celebrate the results. “It's all
coming back. It's coming back faster, bigger and better than we
ever thought possible,” Trump told reporters Friday. “These are the
numbers. These are not numbers made up by me. These are
numbers.”

Andrew Chamberlain, the chief economist at Glassdoor, said the
"positive jobs report does provide a powerful signal of how swiftly
US job growth can bounce back and how rapidly businesses can reopen
once the nation finally brings the coronavirus under control — a
reason for optimism in coming months.”

About that virus. Chamberlain’s comments highlight
a serious and growing problem for the economy: the failure of large
parts of the country to get the virus under control.

As plenty of economists pointed out Thursday, the monthly
employment report is backward looking and provides a snapshot from
several weeks ago. That’s particularly relevant now, given the
recent spike in coronavirus cases in much of the South and West,
which is forcing state officials to reconsider their
approach.

“With more than 40 percent of the country now reversing or
pausing its plans to reopen, the already struggling U.S. economy
has begun to show signs of another shock,” said
Politico.

The initial jobless claims report was also released Thursday,
and it shows that layoffs are persisting at stubbornly high levels.
About 1.4 million Americans applied for unemployment benefits last
week, and more than 19.3 million continue to receive payments — a
slight increase from last week.

Julia Pollak, an economist at ZipRecruiter, told Politico that
hiring has appears to have slowed. “That likely reflects increasing
awareness that we haven’t got this virus under control yet, that
businesses may have to re-close,” Pollak said. “I think that is a
very upsetting and worrying thing.”

A mighty big hole to fill. Even though job growth
has exceeded expectations for the past two months, the number of
unemployed in the U.S. remains at historic levels. There are 14.7
million fewer jobs than there were before the pandemic began, with
total employment still down by nearly 10%.

Mark Zandi, chief economist at Moody’s Analytics, warned
that the recovery is by no means complete, and progress is not
assured. “It’s good news, but the pandemic pushed us into a very
deep economic hole and we’re crawling out and it’s a long way to
go,” he said. “We can certainly fall back.”

Ominously, the number of people who have permanently lost
their jobs is growing. “The first thing I looked at was the number
of people permanently laid off and that continues to climb, and I
think that’s some cause of concern,” Moody’s Ryan Sweet told

Bloomberg. “Even when this pandemic’s over those
people are going to need to find work.”

What the Next Stimulus Package
Could Look Like

While serious negotiations on the next possible
coronavirus stimulus package won’t begin until Congress returns to
Washington on July 20, some analysts think the strong June jobs
report may make it easier for Republican lawmakers and the White
House to limit its size and scope.

Treasury Secretary Steven Mnuchin signaled that the White
House recognizes that the recovery is not complete, saying “our
work is not done” at Trump’s news conference. But White House
adviser Stephen Moore
told The Washington Post Thursday that the
strong report makes it less likely that the administration will
back a $2 trillion to $3 trillion stimulus package along the lines
proposed by Democrats. Moore also said resistance to extending a
big boost to unemployment benefits has also probably grown
stronger.

Still, some kind of package is likely to move forward.
Bloomberg has a
rundown on what the package could
include:

* More aid for business: Lawmakers are debating
another extension for the Paycheck Protection Program, which
provides forgivable loans to small businesses, or potentially
reprogramming its unused funds – as much as $130 billion – for
other kinds of assistance. Mnuchin has said that he would like to
aid more clearly targeted at businesses that need help. And the
administration continues to push for tax breaks to promote hiring
and consumption.

* Unemployment benefits: Democrats want to extend
the $600 per week boost to unemployment benefits, but Republicans
say they want it to end as scheduled at the end of this month,
charging that it motivates workers to stay unemployed. A compromise
could be worked out, providing some kind of enhanced benefits at a
lower level.

* Checks for households: Democrats have proposed
another round of $1,200 per adult stimulus checks, and President
Trump said this week that he would like to see an even larger
amount. But Republican lawmakers are skeptical, and depending on
the economic data, they could sink any effort to provide more
direct aid to households.

* Employer liability: Senate Majority Leader Mitch
McConnell (R-KY) wants to protect employers from lawsuits related
to the coronavirus. “Any bill that passes the Senate will have
liability protections in it,” McConnell said earlier this week.
“This is liability protections for everyone … everybody who
interacted with this pandemic. Unless you’re grossly negligent or
intentionally engaged in misconduct, we’re going to see to it that
you don’t get sued on top of everything else you’ve had to deal
with in trying to get through this.” The White House has also said
it wants to see formal limits on liability, but House Speaker Nancy
Pelosi (D-CA) has said she would oppose any effort to provide broad
immunity for employers.

* State and local aid: Democrats say that state and
local governments need about $1 trillion in aid, likely far more
than Republicans would consider. While the White House and GOP
lawmakers say they are willing to consider some aid, any eventual
compromise would likely well short of what governors and local
leaders say they need.

Writing at the Washington Post Thursday, Catherine Rampell
highlighted the potential importance of such aid. State and local
governments are already cutting back on spending, creating more
downward pressure on employment and economic growth. “Unless
federal aid comes through soon, expect huge new public-sector
layoffs and service cuts in the months ahead, followed by knock-on
job losses in the private sector,” Rampell
said. Thursday.

CBO Estimates Damage to US Economy

The coronavirus crisis will scar the U.S. economy for years to
come, according to the
updated 10-year outlook from the Congressional
Budget Office, released Thursday.

“The economic outlook for 2020 to 2030 has deteriorated
significantly since the agency last published its full baseline
economic projections in January,” the report says. Here some
details from the projections, which assume no further stimulus
programs from the federal government:

  • The unemployment rate will stay above pre-Covid levels
    through 2030.
  • The average unemployment rate for the 2030 to 2030 period
    is estimated to be 6.2%, up from 4.2% in the pre-Covid
    estimates.
  • At the end of 2020, the unemployment rate is projected to
    be 10.5%. It is projected to fall to 7.6% by the end of 2021, and
    6.9% by the end of 2022.
  • GDP growth will remain below its potential for years,
    with the output gap totaling more than $17 trillion by 2030
    relative to the pre-Covid trend.

It’s not all bad news, though. The CBO projects rapid economic
growth in the third quarter, and a 12.4% annualized growth rate in
the second half of 2020. Unemployment is projected to peak this
summer at 14%, before falling “quickly” at the end of 2020 and
through 2021. And interest rates will remain low, making it easier
to finance the trillions in relief spending that, according to the
CBO, has helped prevent the economy from deteriorating further and
boosted the recovery.

The Decline of the IRS

ProPublica has been documenting what it calls “the
descent of the IRS” over the last decade as the agency struggles
with budget cuts and hostility from lawmakers. In a report
Thursday, the independent news organization says that the latest
data from the IRS point to “historic lows for U.S. tax
enforcement.”

Reviewing the IRS’s annual release of enforcement statistics,
ProPublica highlights some interesting data points:

  • In 2019, the IRS reported “the lowest audit rate in
    generations.”
  • Revenues from audits fell to $11 billion in 2019 – down
    61% from the $28 billion collected in 2010.
  • Expiring debt – payments owed to the IRS but not yet
    collected – totaled $6.7 billion in 2019, up from $564 million in
    2010.
  • Enforcement staff has been cut by 36% since
    2010.
  • Audit rates for the wealthy have fallen to 2.4%, down
    from 12.5% in 2011.

Sen. Ron Wyden (D-OR), who has opposed budget cuts at the IRS,
said the data reaffirms the need to beef up the tax agency’s
enforcement capabilities. “It’s a national scandal that the wealthy
are stealing tens of billions from American taxpayers,” he told
ProPublica. “Paying taxes has become increasingly voluntary for
those at the top. … The IRS needs to tackle this challenge head on,
and one of my top priorities if Democrats take control of the
Senate will be to rebuild the IRS.”

For more details, see the
ProPublica analysis here.

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