Trump seeks to ex­pand US stim­u­lus

A sec­ond wave of in­fec­tion spells trou­ble for the US econ­omy and in­cum­bent pres­i­dent, writes Tom Rees

The Daily Telegraph - Business - - Front Page - By James Tit­comb in San Fran­cisco

DONALD TRUMP has said the US will launch a sec­ond round of stim­u­lus mea­sures as it swoons from the ef­fects of the virus.

The US pres­i­dent said he wanted to send cheques to all tax­pay­ers, after $300bn (£240bn) of di­rect pay­ments, or up to £1,200 each, were handed to con­sumers to boost spend­ing in the spring.

“I do, I sup­port it, but it has to be done prop­erly,” Mr Trump said when asked by Fox Busi­ness Net­work if he sup­ported a sec­ond round of stim­u­lus pay­ments.

Amer­i­can leg­is­la­tors in the Demo­crat-led Congress are also work­ing on a stim­u­lus pack­age, al­though Mr Trump claimed he planned to go fur­ther, in­di­cat­ing the new mea­sures could be larger than pre­vi­ous ef­forts.

“I sup­port ac­tu­ally larger num­bers than the Democrats,” he said.

The con­sumer-led US econ­omy con­tracted at an an­nual rate of 5pc in the first quar­ter, be­fore the worst ef­fects of lock­down mea­sures, and the slump is ex­pected to have been much worse in the sec­ond quar­ter.

Mr Trump’s poll num­bers have fallen re­cently ahead of Novem­ber’s elec­tion.

Amonth ago, Donald Trump’s elec­tion cam­paign was given a rare glim­mer of hope by one of Wall Street’s big­gest fore­cast­ing er­rors ever. An­a­lysts were stunned by the jobs re­port for May. Econ­o­mists had pre­dicted that US un­em­ploy­ment would con­tinue to rocket from April’s 15pc, a high last hit dur­ing the Great De­pres­sion, but the job­less rate in­ex­pli­ca­bly fell to 13pc.

It sug­gested that the re­open­ing of states was fos­ter­ing a much-fasterthan-an­tic­i­pated re­bound in the labour mar­ket. While econ­o­mists ex­pect a fur­ther im­prove­ment in June’s un­em­ploy­ment rate to 12pc in new data re­leased to­day, hopes of a sus­tained re­cov­ery are van­ish­ing.

The sec­ond wave of in­fec­tions in mul­ti­ple states is be­ing ac­com­pa­nied by signs of an­other surge in job losses. And the eco­nomic pain is hit­ting Trump right where it hurts ahead of Novem­ber’s vote – the bat­tle­ground states that will swing the elec­tion.

“I’m happy to ex­pect an in­crease in pay­rolls for June but I’m get­ting re­ally ner­vous about what’s go­ing to hap­pen when we get into July and Au­gust,” says Ian Shep­herd­son, US econ­o­mist at Pan­theon Macro. “[Busi­nesses] are let­ting peo­ple go again and let­ting go of peo­ple they fired and re­hired across the South and the West.”

He says hopes of a rapid re­bound in jobs this sum­mer “look much less re­al­is­tic after the sec­ond wave” in many parts of the US.

The econ­omy has been one of the hard­est hit by job losses dur­ing the pan­demic with un­em­ploy­ment surg­ing from a 50-year low of 3.5pc to lev­els not seen for al­most a cen­tury.

The Trump administra­tion opted to boost un­em­ploy­ment ben­e­fits rather than in­tro­duce a fur­lough scheme that cush­ioned the blow in Europe by sub­si­dis­ing wages to keep work­ers in jobs. The eco­nomic pain has helped en­sure the pres­i­dent is some nine points be­hind Demo­cratic chal­lenger Joe Bi­den in the polls.

Econ­o­mists fear a sec­ond wave of Covid-19 in­fec­tions risk de­lay­ing the US jobs re­cov­ery or even de­rail­ing it com­pletely. Ac­cel­er­at­ing cases have forced many states to post­pone or re­verse their reopen­ings with the US record­ing its big­gest one-day rise in in­fec­tions on Tues­day.

“An on­go­ing rapid re­cov­ery of the labour mar­ket de­pends pri­mar­ily on the fur­ther de­vel­op­ment of the pan­demic and on the re­ac­tions of busi­ness and con­sumers,” warns Bernd Wei­den­steiner, Com­merzbank econ­o­mist.

The pic­ture varies dra­mat­i­cally from state to state, with a quar­ter of work­ers in Ne­vada un­em­ployed but just 5pc job­less in the more ru­ral Ne­braska.

The Covid-19 shock has hit jobs harder in “blue states” con­trolled by Democrats than in “red states”, ac­cord­ing to the In­sti­tute of

In­ter­na­tional Fi­nance. Robin Brooks, its chief econ­o­mist, pinned this on the “greater ur­ban­i­sa­tion” and more ser­vices-ori­en­tated economies in typ­i­cal Demo­cratic states.

The six key 2020 elec­tion bat­tle­grounds were not es­pe­cially hard hit by the first wave of job losses, ex­cept Michi­gan, but many look vul­ner­a­ble if a sec­ond sweeps the coun­try. A CNBC poll al­ready puts Trump be­hind Bi­den in all six states.

Ari­zona is putting many re­stric­tions back in place, clos­ing bars, gyms and cin­e­mas after be­com­ing one of the coun­try’s big­gest Covid-19 hot­beds. Its job­less rate was at 9pc in May but un­em­ploy­ment ben­e­fit claims surged in June, early data sug­gest.

Other swing states are also mov­ing to­wards tighter re­stric­tions, pil­ing the pres­sure on jobs. North Carolina, Michi­gan and parts of Penn­syl­va­nia are de­lay­ing the next re­open­ing phase, and bars in Florida can­not serve al­co­hol in an at­tempt to keep drinkers away and curb in­fec­tion rates.

If laid-off work­ers vent their anger at the bal­lot box, Michi­gan and Florida look most vul­ner­a­ble for Trump with un­em­ploy­ment rates in those states al­ready at 21pc and 15pc re­spec­tively.

“If re­newed con­tain­ment mea­sures across nu­mer­ous states make it un­vi­able for busi­nesses to op­er­ate then it will only add to the prob­lems in the jobs mar­ket,” warns James Knight­ley, ING econ­o­mist.

He warns that un­em­ploy­ment ben­e­fits claims data are “re­main­ing sticky” while data from Home­base – one of the few lead­ing in­di­ca­tors that picked up the un­ex­pected May num­ber – sug­gest small busi­nesses are “shed­ding jobs again”.

Re­cent his­tory sug­gests Trump’s prospects for re-elec­tion are grim if the Amer­i­can worker is feel­ing the pinch. The last two in­cum­bent pres­i­dents to be beaten – Ge­orge HW Bush in 1992 and Jimmy Carter in 1980 – both saw the job­less rate rise in the 12 months be­fore their de­feats.

“In nor­mal times, the econ­omy and in par­tic­u­lar what’s hap­pen­ing to un­em­ploy­ment has a huge bear­ing on the out­comes of elec­tions, par­tic­u­larly in terms of in­cum­bent pres­i­dents,” says An­drew Hunter, Cap­i­tal Eco­nom­ics US econ­o­mist.

“We have seen an un­prece­dented rise in un­em­ploy­ment so that looks very poorly for Trump’s re-elec­tion chances.”

A strong econ­omy was cred­ited with prop­ping up Trump’s ap­proval rat­ing be­fore Covid-19. Trump’s great­est strength is be­com­ing his big­gest prob­lem – and time is run­ning out.

The Trump administra­tion opted to boost un­em­ploy­ment ben­e­fits rather than in­tro­duce a fur­lough scheme that cush­ioned the blow in Europe

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