Both Reopening and Stimulus are Needed

It was 1.4 million people of United States who filed for temporary unemployment benefits last week. The data was slightly elevated over the previous two weeks, when claims clocked in at about 1.3 million. Many took that as a signal that a new surge in coronavirus cases—and the shutdowns and business closures accompanying it—is damaging the labor market’s recovery. On other hand, there are 975,000 who people submitted claims to the Pandemic Unemployment Assistance program—a temporary facility set up by the federal government to provide aid to freelancers, and self employed people, and others not eligible for traditional unemployment benefits—last week.

The 6.9 million is the highest ever number of weekly claims ever recorded, from late March during the early days of the pandemic’s spread in the United States. The previous record was 695,000 claims  during one week in 1982.  Then there are 4.1 million Americans lost jobs between the first and second weeks in July, according to U.S. Census Bureau data— right around the time new shutdowns in Texas, California, and Florida began to take effect. The 47%, that’s the portion of Americans in households that have experienced pandemic-related job losses who believe that those jobs are unlikely to come back, according to a new poll from The Associated Press-NORC Center for Public Affairs Research. It’s a major shift in optimism from April when 78% of people believed the jobs would return.

Also, 11.1% was the unemployment rate in June—slightly lower than the eye-watering 14.7% rate the United States saw in April, but still astronomically higher than the record low 3.5% unemployment in February.  Another dip in the labor market and a stalled recovery means that some experts will expect that number to rise again in July. That’s not to mention the worsening public health situation: Moody’s chief economist Mark Zandi predicts that unemployment will remain in double digits until “well after” the pandemic is over.

Unfortunately, the $600 as the weekly federal unemployment supplement will expire next week. Before, there were 30 million people currently receiving government unemployment benefits—about 20% of American workers.  But lawmakers in Washington still haven’t agreed on how to extend it, or whether to extend it at all. Democrats are adamant that the boosted benefits be extended through at least the end of the year, but Republicans don’t agree, arguing that the supplement discourages Americans from returning to work because some people have taken home more money on unemployment than they would have at their regular jobs

However, contradictory business conditions have begun to show positive stretches. Sales of new single-family homes have bounced back, posting gains in May and June following three consecutive drops in February, March, and April. Total sales jumped 13.8 percent in June to a 776,000 seasonally adjusted annual rate, the fastest pace since July 2007, and are up 6.9 percent from a year ago. Sales rose across all four regions tallied: sales surged 89.7 percent in the Northeast, putting sales 111.5 percent above year-ago levels; sales were up 18.0 percent in the West, leaving that region’s sales rate 4.1 percent above the year-ago pace; sales were up 10.5 percent in the Midwest (and were 33.3 percent above year-ago levels); while in the South – the largest region by sales volume – sales increased 7.2 in June but were 1.8 percent below the year-ago level.

Total inventory of new single-family homes for sale declined 1.3 percent to 307,000 in June, the third decrease in a row, leaving the months’ supply (inventory times 12 divided by the annual selling rate) at 4.7, down 14.5 percent from May’s 5.5 months, and 14.5 percent below the year-ago level (see bottom chart). Sales in the market for existing single-family homes rose 19.9 percent in June, coming in at a 4.28 million seasonally adjusted annual rate. From a year ago, sales are off 9.9 percent. The June pace is about in line with the dip in early 2014 but below the range of 4.4 million to 5 million since early 2015.

By region, sales for existing single-family homes followed the same pattern as total existing homes: sales were up 30.8 percent in the West but are still down 12.4 percent from the year-ago level; sales rose 24.2 percent in the South, leaving that region’s sales rate 2.5 percent below the year-ago pace; sales gained 11.7 percent for the month in the Midwest but are 12.5 percent below the June 2019 rate; and sales were up 4.9 percent in the Northeast, leaving sales 25.9 percent below year-ago levels. The existing single-family home segment saw inventory fall 0.7 percent to 1.37 million, pushing months’ supply to 3.8 from 4.6.  Months’ supply for the existing single-family segment is very low by historical comparison

The remaining economic choices are indeed not easy. The government might hope that the situation will gradually improve without increasing unemployment incentives, provided the Covid 19 threat can be resolved well. This means that health protocols that are in accordance with the pandemic situation must be strictly stipulated and supported by an adequate federal and state budget. This is the choice that is being trialled by Donald Trump, reopening schools, universities, restaurants, tourist destinations, and companies that have been forced to lay off employees over the past few months

This choice is politically suitable for the Donald Trump administration who wants to restore the economy to the situation in January. Because by doing so, one problem that will block Trump from being reelected can be overcome. But the situation on the ground is not as easy as imagined because the Democratic Party and various elements of society that have been at odds with Donald Trump’s policies still echo the danger of the second wave of Covid 19 on the one hand and are still lulled by the romanticism of Black Live Mater (defund the Police) on the other. Democratic parties in parliament want all forms of incentives during the pandemic to continue until the end of the year, which politically will give credit points to the Democratic Party and Joe Biden.

So Trump could have taken credit points for the previous stimulus policies, as the White House beat Antony Faucy to show recognition of the existence of Covid 19. This move might be going to become controversial and will add to the polemic list for the White House and the president, as the case of Antony Faucy. Of course, that is not a good thing in the midst of a political situation that requires serious efforts to be re-elected. But it may also not be the case, if the white house plays it in a nice ways. If it is done smoothly, then the stimulus is not expected to fully be a credit point for the Democratic Party and Biden. The White House who is used to camera highlights can build a positive image of the continued stimulus for Donald Trump.

On other side, reopening decision is also crucial need. Because by delaying the reopening of the economy, Trump will continue extending the critical period of the American economy, which could worsen his image in front of voters. So with a signal of improving business and sales conditions, Donald Trump should be able to more clearly show the alignments to the pandemic situation by allocating a budget for affirmation of health protocols and massive procurement of personal protective equipment, then pressuring companies to implement the strict health protocols at work, while still pouring out unemployment stimulus. Thus, pandemic incentives for unemployment and those affected by Covid 19 can be continued and the threat of a further crisis can be anticipated. The foremost thing, politically, the political benefits that are likely to be achieved by the Democratic Parties from all kind of pandemic programs can be suppressed.

But unfortunately, the GOP in the parliament and Trump administration itself tend to weaken the stimulus options for unemployment while proposing to reopen the economy.  These option will make the reopening plan lack of justification, especially in terms of the security of  reopening of the American economy. Meanwhile, the long negotiation process for the unemployment stimulus package tends to corner the GOP and the Trump administration which are considered less supportive and less empathetic towards victims affected by the pandemic

About the Author
An International Political Economy and Strategic Analyst, A Senior Fellow at Indonesia Economic Action Institution/EconAct