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America’s COVID-19 economy struggles as cases climb

As the emergency $600-per-week unemployment benefit expired on July 31, officials expressed optimism for another relief package. The bill, being negotiated right now, would be the fifth since the pandemic hit and likely the last before the November elections. Diane Swonk, Chief Economist with Grant Thorton joins Hari Sreenivasan to discuss the economic effect of the pandemic.

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  • Hari Sreenivasan:

    For more on the economic effects of the pandemic, including a recent rise in the stock market, I spoke with Diane Swonk, Chief Economist with Grant Thornton via Zoom from Chicago.

  • Hari Sreenivasan:

    So Diane, broadly, when people hear this horrible news about the big picture of our economy and then they look over at the stock market and they see the number keeps climbing. Where's the connection now between how the economy is doing and how the stock market's doing?

  • Diane Swonk:

    Well, first of all, there is a big disconnect between the drivers of the stock market, just a few of a handful of a few firms that happen to be benefiting from this horrible environment, pushing it higher, and many of the firms that have been hit hardest are small companies, small businesses that are not even listed on publicly traded companies.

    So that's one of the issues, and other issues, of course, that, you know, low interest rates tend to benefit the stock market first, the tools that the Fed has to stimulate the economy are very blunt. And unfortunately, it shows up in the stock market more than it shows up on Main Street. But it is important because you can't have credit markets functioning and have jobs generating as well.

    So the Fed has to do what it's doing in order to reach those who are hardest hit by this crisis, yet it does exacerbate some inequalities in wealth out there. And that's something they're coming very much aware of at this stage of the game.

  • Hari Sreenivasan:

    So much of our economy is propped up by people spending on goods and services. It's not like we stopped eating food. We're still buying the basic things that we need. And for some people even, that's hard. Where have we been spending over this last quarter?

  • Diane Swonk:

    Well, where we saw it, we don't spend much at all, except for on food, really in April and as we got into May and June, we saw, you know, as states opened up sometimes too rapidly with the spread of the COVID virus, we saw restaurant spending pick up a bit. We saw spending on clothing really strong. And as we got into June, finally, people backed up on elective surgeries that really surge spending on healthcare outside of COVID virus, which is important because many people have delayed things during the lockdown. So that came back as well.

    We also start to see people travel a little bit, spending on accommodations and restaurants and where they were traveling to. Driver miles picked up, gasoline usage picked up, although they didn't do a lot of other kinds of transportation. So you saw slightly some of those things come back that you would expect as you slowly opened up. But a lot of the spending on services was still absent outside of the health care sector.

  • Hari Sreenivasan:

    And here we are heading into a weekend where Congress has not come to an agreement on unemployment insurance and benefits. And for a lot of people, that $600 is a big deal, that even, best case scenario, even if Congress miraculously comes to an agreement, it's still going to take a couple of weeks to kick back in.

  • Diane Swonk:

    It's really like falling off a cliff. This is really stunning that Congress has not been able to come together on this issue. Not only did that money provide much-needed food and shelter for people, even with all the increases in income we saw in that extraordinary support and stimulus payments, which really were aid payments, a lot of it went to paying for food. People still couldn't pay their rent. So this is really important right now that at the very moment the moratorium on evictions is expiring and the extra expanded unemployment benefits are also expiring.

    You're really going to have food and shelter as your biggest hit hardest where people are already in miles long food minds. We're talking about the biggest food insecurity and homelessness that we've had since the Great Depression. That's really stunning. And it's already on the rise. We had homelessness rising when we had three and a half percent unemployment rate. Think of what we could see in the next couple of weeks is something that's never been seen in anyone's recent memory.

  • Hari Sreenivasan:

    Depending on your politics, all the things that you just said about how bad things are, are used as a case to try to reopen the economy faster. And they're also used to try to say, let's get a handle on the public health crisis, because that's what's important and that's what's driving the economy. Right. It seems a false choice that we really shouldn't have to choose between our health and our economy.

  • Diane Swonk:

    The course of COVID determines the course of the economy. It's so much intertwined and linked together that the Fed chairman, Jay Powell, and the Federal Reserve decided to insert that line into their statement this week when they concluded means that the course of the economy is dependent on the course of the virus.

    The economy cannot do better until we bend the curve on COVID, and what we've seen is not only did we pull back before we had one state go into a lockdown, we lost 1.4 million jobs by March 14 before the first state went into lockdown on March 19 because people pulled in because they were afraid of contagion and firms pulled back on their meetings. We're seeing that same exact behavior started in the latter part of June and early July.

    And the states that are hardest hit by COVID are seeing the largest pullback in spending before they reverse course on openings. And I think that's what's important is fear is a real factor. Our behavior is what drives the economy. And you can't have a healthy economy without having our help.

  • Hari Sreenivasan:

    All right. Diane Swonk, thanks so much.

  • Diane Swonk:

    Thank you.

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