Second stimulus checks are all the rage these days with pundits parsing pronouncements by the President and others in an attempt to read the payment tea leaves. The reality is that the odds of a second direct payment remain low with resistance among Senate Republicans and skepticism even among Senate Democrats. However, instead of relying on rhetoric, a better way to gauge the likelihood of a second stimulus check is to focus on three intertwined factors.
#1: Renewed Coronavirus Outbreaks
The current economic slowdown was directly triggered by the coronavirus pandemic, which forced large swaths of the nation into lockdown. While most states have started to re-open at least partially, there have been renewed coronavirus outbreaks in many states. Resurgence of Covid-19 will stifle both businesses and consumer demand, which are critical to catalyzing the economy. Consumer spending, for example, is still tempered compared to levels before Covid-19.
“The renewed outbreak will hinder the recovery,” Carl Tannenbaum, chief economist at Northern Trust in Chicago, told The New York Times. “I can’t help but think that the willingness of consumers to be in crowded places has diminished. It’s going to be a long haul to get back to where we were before the pandemic.” On Wednesday, the U.S. reported the highest one-day number of cases since coronavirus hit. 29 states currently have rising case numbers, according to a New York Times database, with a high concentration in the South and West. Several states, including Texas, Arizona, and Florida have been forced to pause their reopening plans.
Texas, which has seen a surge of new cases along with increased hospitalizations, serves as a good case study. The spike in cases has alarmed officials and caused Governor Greg Abbott to “pause any further phases to open.” “Literally, there’s been an explosion in the number of covid-19 patients,” Abbott said, while highlighting that the “massive increase in spread” has struck small communities and big cities alike. These pauses will undoubtedly slow recovery in Texas. As one example, Abbott banned elective surgeries in four counties to preserve beds for coronavirus cases. This is a smart decision, but will have economic repercussions by causing already struggling hospital systems to incur even larger losses.
Relation To A Second Stimulus Check:
The first round of stimulus checks were supported because the immediacy and severity of the economic decline left millions without a paycheck. “We wanted to get money out quickly. We used the refund checks to do that,” said Senator Ben Cardin (D-Maryland). As most states were in the process of reopening, Cardin remarked several weeks ago that it may be time to utilize a different fiscal policy solution. However, with renewed outbreaks and potential closure of states, or at least delayed reopenings, Senators may reconsider.
Similarly, many members of Congress had conditioned their support of a second stimulus check and a larger stimulus package to what is needed to help Americans. “I’m open to anything that helps Main Street, if we need to help them going forward,” said Rep. Greg Pence (R-Indiana). “I think it’s a little premature in my state – the economy’s doing great, we’re flat on the virus – so I think we have to go slow, let’s not get ahead of ourselves on a second stimulus package.” With renewed outbreaks and a virus graph that is anything but flat, Pence and others may have a change of heart.
An increase in coronavirus cases and continuing outbreaks across the U.S. will stifle the economic recovery. If a rapid resurgence continues, expect more demand for Congressional intervention and a second stimulus check.
#2: Unemployment Rate
There will be a strong relationship between the renewed outbreaks and the the type of economic recovery the U.S. will have. “There’s a lot of turmoil in the labor market, a lot of churn,” said Joel Prakken, chief U.S. economist at the consulting and research firm IHS Markit. “The upturn in cases is worrisome.” More specifically, the unemployment rate will be used as a metric to gauge the speed of recovery and the size of additional stimulus measures that are needed.
We have already seen politicians seize on unemployment data to frame the debate over the next stimulus bill. When the May unemployment data was released and showed a decline in the unemployment rate, Republicans quickly used it to blunt momentum for more coronavirus relief aid. “It takes a lot of the wind out of the sails of any phase 4 — we don’t need it now,” said Stephen Moore, a White House economic adviser. “There’s no reason to have a major spending bill. The sense of urgent crisis is very greatly dissipated by the report.”
Relation To A Second Stimulus Check:
The June unemployment data will be released on Friday, July 2. If it shows further decline in the unemployment rate, the likelihood of a second stimulus check will continue to drop. However, an uptick in the unemployment rate predict a higher likelihood of a second stimulus check.
Initial jobless claims in regular state programs slightly declined this week, although it was also the 14th straight week with one million or more claims. At the same time, companies have continued with massive layoffs, including Macy’s recently cutting 3,900 corporate jobs. Other companies, including Tapestry, the parent company of Coach, Barnes & Noble, General Electric, Uber, and Airbnb,had also announced they would lay off thousands of workers. These layoffs should be reflected in the June unemployment data that will be released. Furthermore, a recent survey by the National Federation of Independent Business found that 14 percent of employers “planned to cut workers after making use of Paycheck Protection Program loans.”
The prospect of a second stimulus check may largely depend on the sentiment created by the upcoming unemployment rate and jobs report.
#3: Trump’s Poll Numbers
As Forbes’ Andrew Solender reported, “a total of 19 polls of voters in swing states from four different pollsters were released Thursday, with former Vice President Joe Biden leading President Trump in every single one, including in historically Republican states like Arizona, Georgia and Texas.” This included a Fox News poll showing Trump trailing in another key state, Florida.
The new polls reinforce the deterioration of the president’s standing over the past six months. In six battleground states, Trump has lost ground to Biden.Biden’s lead has grown from two percentage points to nine since October, according to Times/Siena polls. While 42 percent of voters in the battleground states approve of how Trump is handling his job, 54 percent disapprove, based on the New York Times polls.
Interestingly, there is one area in which Trump is out-polling Biden: the economy. Trump “maintains a substantial advantage on the economy, which could become an even more central issue in what has already been a volatile election cycle.” Trump has a 56 percent approval rating on the economy, compared to a 40 percent disapproval rating, which close to a perfect inverse of his overall approval rating.
Relation To A Second Stimulus Check:
If the economy is all Trump has left as an advantage over Biden, he may look to pull out all stops to catalyze it, including an aggressive push for a second stimulus check.
“President Trump has told aides he is largely supportive of sending Americans another round of stimulus checks, expressing the belief that the payments will boost the economy and help his chances at reelection in November,” according to The Washington Post.
The more Trump’s poll numbers sag, the more likely he is to push for a second stimulus check.