Relief Package Would Limit Coronavirus Damage, Not Restore Economy

Economists say rapid payments are essential, and further measures would be needed to aid households, firms

The $2 trillion emergency relief package approved by the Senate would help stabilize the coronavirus-battered economy—but likely isn’t enough to bring it back to health.

Preliminary data suggest that the U.S. economy is already shrinking, as businesses close and unemployment soars. The depth of the economic decline in the coming months will depend on how quickly Washington can deliver checks to cash-strapped households and businesses, as well as whether a treatment is found and how soon shutdowns are lifted, economists said.

If passed, the new law would provide loans and other disbursements to a wide swath of the economy, including direct payments to Americans and loans to large and small companies. Rep. Steny Hoyer (D., Md.), the House majority leader, said late Wednesday that the House would consider the stimulus bill on Friday. President Trump has said he would sign it immediately.

“As big as this is, you’ll never look back on this and say, ‘We went too big.’ You’ll look back and say, ‘What did we miss?’” said Diane Swonk, chief economist at Grant Thornton.

At more than 9% of gross domestic product, the measure is larger than the three major packages enacted to counter the 2007-09 recession, said Ernie Tedeschi, an economist at Evercore ISI. Even so, more will be needed, he said.

“The scale of the problem is accelerating, and it’s moving faster than fiscal policy makers are acting,” Mr. Tedeschi said.

Economists at Moody’s Analytics predict the bill would limit the drop in second-quarter GDP to 17% at an annual rate. Without the legislation, it would have fallen at a nearly 30% rate, they estimate. For the year as a whole, Moody’s expects output to decline by 2%.

The measure provides for one-time payments of $1,200 each to many Americans, plus $500 per child, with assistance limited to certain income levels. It expands unemployment insurance and includes $349 billion in loans to small businesses to help them pay workers and cover expenses.

Another $500 billion would be available to the Treasury Department to make or guarantee loans to larger corporations, including airlines, either directly or through lending facilities established by the Federal Reserve.

“All of these different measures are meant to plug the holes in the boat, if you will, as opposed to trying to speed things up,” said Wells Fargo economist Michael Pugliese.

Plugging the boat will take time. Trump administration officials said they hope to begin making the first payments to households within a few weeks. During the last downturn, it took more than two months.

“A lot of families and businesses can know that help is on the way,” said Jason Furman, a Harvard University economics professor and former chairman of President Obama’s Council of Economic Advisers. “Hopefully they can hang on until the help gets there, but the help is not going to come overnight.”

Payments to households, estimated to total $300 billion, would likely come in waves, first to people whose information the government already has, such as federal benefit recipients and people who file regular tax returns. Harder to reach may be the most vulnerable: people who don’t file taxes because their income is too low.

The payments might be delayed by the burden they place on an underfunded Internal Revenue Service, with a workforce strained by the pandemic and unable to staff taxpayer assistance centers.

Potentially one of the most helpful pieces of the bill, economists said, is a broad expansion in unemployment insurance. The measure would extend benefits to gig economy workers and freelancers and would increase current unemployment assistance by $600 a week for four months.

A new program launched under the Small Business Administration would also take time to distribute $350 billion in loans to companies with fewer than 500 employees. Employers that keep paying workers through the downturn could have the loans forgiven.

Once the program is established, the SBA would then have to assess the eligibility of borrowers. Firms would need to prove the size of their workforce and their previous payroll expenses to determine loan sizes.

Policy makers will probably revisit the programs later in the year to determine whether they have done enough.

“The number of people that are hurt will be hurt longer than this package will last,” said Ms. Swonk of Grant Thornton.

Particularly concerning is the impact on state budgets later in the year, Ms. Swonk said. The bill provides additional money to states for expenses related to the coronavirus, but that might not be enough.

A sharp rise in unemployment could cost states billions in lost revenues and higher benefits spending, forcing them to scale back budgets for the next fiscal year and weighing on economic growth.

“You don’t want to have this major setback just as you’re starting to ramp up,” Ms. Swonk said.