The case for more fiscal stimulus is clearer than ever: Morning Brief
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Thursday, July 9, 2020
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Sending people money works, and the economy is slowing down again.
At the end of the month, the U.S. economy faces a critical juncture.
Enhanced unemployment insurance that puts an additional $600 in the pockets of those out of work each week is set to expire. These payments, combined with a $1,200 check for those making less than $75,000 with an additional $500 for each child, were a key part of the first round of stimulus passed in March.
A package that has helped the economy through one of its darkest periods in modern history.
On Tuesday, the economics team at Deutsche Bank led by Brett Ryan said in a note to clients that, “Buoyed by massive fiscal support, consumer spending through May has modestly outperformed expectations, presenting some upside risks to our Q2 and second half spending forecasts.
“However, with virus growth rates ticking back up in about three quarters of US states and reopening of activity being rolled back, the outlook for H2 spending remains highly uncertain.”
In its note, the firm highlighted the following chart, which shows a sharp rebound in spending for consumers in the lowest quartile of earners.
“Despite the disproportionate impact on lower income employment, consumption for this group has held up remarkably well, a testament to the fiscal response,” Deutsche Bank said.
In late June, Treasury Secretary Steven Mnuchin said the Trump administration is "very seriously considering" another stimulus bill that could pass this month. Data on consumer spending alone makes a strong case for extending support to households in the months ahead. But the recent surge in COVID cases and signs of a slowdown in real-time measures of economic activity makes the situation even more urgent.
"The high-frequency data suggest renewed fears about the coronavirus are starting to weigh on consumption even in states that haven’t moved to reimpose restrictions, reinforcing our view that the pace of the economic recovery will slow over the next few months," said Andrew Hunter, senior U.S. economist at Capital Economics.
Hunter notes that OpenTable data — which we flagged in the Morning Brief two weeks back — and foot traffic at retail locations show a noted slowdown in economic activity, while polling shows a recent uptick in consumer fears about contracting the virus.
On Wednesday, Renaissance Macro flagged data from Homebase which points to softening demand for hourly workers in several key sectors.