The federal government is mulling a number of limited steps to counter the economic impact of the coronavirus outbreak in the U.S., while New York declared a state of emergency over the weekend.
But administration officials emphasized they’re considering only a targeted approach instead of broad-based fiscal stimulus such as direct payments of the type Hong Kong has proposed for its citizens. Some analysts doubt either the usefulness or the need for stimulus measures at this time, however.
Renaissance Macro Washington policy analyst Stephen Pavlik writes in a client note Saturday that “the Trump administration has said that it is evaluating the data and trends coming regarding the virus in coordination with other nations.”
The Washington Post reported Friday the administration was looking at steps to cushion the sectors hardest hit by the virus, such as the airline, cruise, travel, and hospitality industries, by deferring taxes. Politico also reported the administration was looking at ways to ease businesses’ debt payments, including suspending late fees, making low-interest loans, or pushing loan forgiveness, which Pavlik said would probably require Congressional action.
Those would be in keeping with the “targeted” approach Treasury Secretary Stephen Mnuchin said this past week that he favored. “The virus is liable to have a targeted impact, unlike the financial crisis which impacted everybody,” he added.
Consistent with that tack, Larry Kudlow, director of the National Economic Council, endorsed a “a timely and targeted micro approach” Friday, such as money for small businesses in specific geographical areas and industries hit by the coronavirus outbreak.
But in an interview with Fox Business, Kudlow ruled out “big, expensive macro cash rebates, helicopter money from the sky,” which he asserted “never works.” In another interview with Bloomberg Television, the NEC head said “We don’t want to willy-nilly throw $300-$400 billion, with a thousand-dollar check to every American.”
That is actually what Hong Kong is doing, sending the equivalent of $1,280 to permanent residents hit by the virus and the effects of last year’s protests. Pavlik added that the Center for American Progress, a liberal-leaning public-policy research and advocacy organization, has proposed stimulus measures such as a payroll tax holiday or direct cash payments.
But he cast doubt on such measures’ effectiveness. “It is uncertain that any amount of economic stimulus is going to be able to address global supply-chain concerns or make people comfortable traveling again,” he wrote.
Moreover, he said, to call for more stimulus measures so soon after Congress last week passed an $8.3 billion measure to address the virus outbreak “could convey a sense of panic by the administration that it does not have a true sense as to the severity of the pandemic and create a crisis of confidence in a presidential election year that would be difficult for Trump to overcome.”
There also are traditional automatic stabilizers to ameliorate the impact of any economic downturn, starting with unemployment insurance. At present, there seems little need for this income supplement. New claims for jobless benefits remained near a half-century low in the latest reporting week ended Feb. 29.
Meanwhile, nonfarm payrolls surged by 273,000 in February, the Labor Department reported Friday, which was nearly 100,000 more than economists had forecast. The overall jobless rate dipped 0.1 percentage point, to 3.5%, equaling a half-century low. But economists and investors dismissed this jobs report because it didn’t capture any job losses that might take place as a result of the spreading virus.
Perhaps those job losses will be limited by the actions of some big technology companies. Axios reported Friday that Microsoft (ticker: MSFT), Amazon.com (AMZN), Alphabet (GOOGL), Facebook (FB), and Twitter (TWTR) said they plan to continue to pay hourly workers while many of their employees work from home. While tech employees can do their jobs remotely, company-support workers who perform jobs such as cooks, shuttle drivers, and office-maintenance crew can’t.
A Microsoft spokesman said “we recognize the hardship that lost work can mean for hourly employees.” Clearly it is good public relations for these highly profitable tech giants to help out hourly support workers amid concerns over income inequality that pervades the nation’s politics.
To be sure, not all businesses are in a position to be as generous, notably the hard-hit airlines. United Airlines (UAL) asked employees to take unpaid leave and instituted a hiring freeze this past week. UAL shares are down 36.6% since Feb. 12, while rival Delta Air Lines (DAL) is off 22.8% and American Airlines Group (AAL) is down 47.6% in that span, since the coronavirus crisis deepened.
So far, the main policy response has been the Federal Reserve’s surprise half-point interest rate cut last Tuesday, which has had limited effectiveness in halting the tightening in financial conditions evident in the fall in the stock market and the parallel deterioration in the speculative-grade credit markets. While the rate cuts should support the housing sector, their effectiveness in solving the impacts of coronavirus is limited, as Fed Chairman Jerome Powell admitted in his press conference following the central bank’s action.
If the economic fallout from this epidemic worsens, there are some proposed measures on the table. It’s uncertain at this point if they’ll be needed—or whether they would be effective if they were enacted.
Write to Randall W. Forsyth at randall.forsyth@barrons.com
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