Without a Second Stimulus, Expect Recovery to Slow

As the U.S. economy continues its climb from the depths of recession, there are still many questions regarding the second stimulus package. In the past week, discussions between the two parties’ leaders started gaining steam, but a large difference remained in the amount of funds each group wants to allocate to the program. Democrats have pushed for a $2.4 trillion package while Republicans believe that $1.6 trillion is a more appropriate number. While it seemed like the two sides had a chance to come to an agreement before the Nov. 3 election, comments tweeted by President Trump on Tuesday, Oct. 7 put an end to this, “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill.”  This comment came as the President believes that democratic leadership was not negotiating in good faith.

When talks do resume, the amount of recovery funds will continue to be the most contentious issue, but how the money is allocated will prove to be a difficult decision as well. At this point, it seems that another $1,200 check to taxpayers is almost a guaranteed outcome of any deal, but there are still questions as to how the other money will be spent. The amount allocated to local and state governments has also been disputed throughout the process.

While it seems that this second stimulus package may be on the backburner for some, others worry that further delays in an agreement could lead to a deceleration of economic recovery. Only a few hours before negotiations were halted, Fed Chairman Jerome Powell, spoke on the urgency to reach a deal. He believes that this additional support must be provided to both businesses and households in order to ensure a speedier recovery. He concludes that the first round contributed to the suppression of some of the normal recessionary dynamics that typically occur and that if we do not act soon, we may see households and businesses cut back on spending which can result in more lost jobs. A situation like this would certainly slow recovery and the longer they wait, the more urgent the situation may become. 

Effectiveness of the First Stimulus Package

Looking back, how effective was the first stimulus bill in jumpstarting the economy?  It is hard to give a definite answer, but we can look at some research as well as the movement of certain economic indicators to try and gauge the success. 

$1,200 Check

In May, Kellogg Insight published a report highlighting some findings on the effectiveness of the first $1,200 check out and the results told a tale of two Americas. The first group that was looked at were those with more than $3,000 in their checking accounts. For these people, the arrival of the stimulus check did almost nothing. The money was not immediately put back into circulation and was sat on in most situations. On the other end of the spectrum, those with less than $500 in their checking accounts were much more likely to use the cash quickly. This group spent 44.5% of the money within 10 days of receiving it which did indeed contribute to economic stimulation. According to the initial results of the research, it appeared that a lot of this money was not used to revive the hardest hit sectors of the economy. In the past, these funds were spent on durable goods that would boost hard hit areas such as retail and manufacturing. Instead, this group spent the money on food, utilities, rent and household items. This makes sense as many that fall into this group were temporarily out of work and spent the cash in an appropriate way. So, while it may not have been as effective as policy makers had initially hoped in terms of a large scale economic boost, many households that were adversely affected by shutdowns were able stay on their feet with the extra cash. 

This Kellogg Insight research was published in May, but now in October, it appears that some of the idle cash has made its way back into the economy. In the three months following the deposit of these checks, orders for durable goods rose significantly. New orders jumped by 15%, 7.7%, and 11.7% in May-July, respectively. Included in this is the sale of automobiles which saw sales surge 109.9% in May, although this followed consecutive 35%+ dips in March and April. Sales also rose by 2.8% and 7% in June and July, respectively. We also saw a rise in home prices in the three-month period following the distribution of checks. According the Case-Shiller index, home prices rose by 4.5% in May, 4.3% in June and 4.8% in July. While low interest rates are likely the reason for this increased demand, the extra cash from the stimulus check surely aided some potential homebuyers.

Overall, it is hard to tell exactly how much the stimulus checks accelerated economic growth, but it does appear that many families were kept afloat by this payment. This time around, many more Americans will be in better shape than in April, so it will be interesting to see how the money is spent. If a second deal is reached soon, it is likely that much of the cash will be pushed back into the economy as it may perfectly coincide with the holiday shopping season.

Small Businesses and the Paycheck Protection Program

A major part of the first round of stimulus was the government’s willingness to help small businesses survive until they were once again able to open their doors. The Paycheck Protection Program was created to help these businesses pay some of their bills, but the main goal was to keep employees on the payroll. While it did its job initially, many of these firms soon ran out of funds and those who continue to struggle are no longer able to apply for this loan as the program closed on Aug. 8.  n the end, the SBA distributed more than $525 billion to more than 5.2 million companies. 

In the COVID-19 Print Business Indicators Report, July 2020, we attempted to understand how the Paycheck Protection Program and other SBA loans aided print, and based on responses, it seemed to be significant. 77% of the printers we surveyed applied for a PPP loan and nearly 97% were approved. Respondents gave the following quotes to show the effect that the PPP had on their firm, particularly on their employment levels.

• “PPP enables us to maintain staffing levels.”
• “The only reason our payroll hasn't decreased is because of using PPP funds.”
• “PPP program has kept staffing unchanged, otherwise we'd be shutting it all down soon...”
• “Employment and staffing remain the same because of PPP funding. This will change when the PPP covered period ends.”
• “We did receive a PPP loan so everyone was brought back on the payroll. Otherwise, we'd have about 20% of our workforce furloughed.”
• “We have maintained all staff due to PPP loan…employment size has not changed. Without the loan we would be down 20%.”

In each COVID-19 Print Business Indicators Report, we ask printers to tell us whether their employment is trending upward, downward or staying the same. The table below shows how respondents answered this question and breaks down printers into two categories: Those who applied for a PPP loan and those who didn’t. It appeared that the loan did a good job of maintaining employment levels for those who applied as 63.1% of these firms said that employment was staying the same while only 48.6% of firms who did not apply for the loan saw their employment remain steady. Also, 40.4% of the firms who did not apply saw their employment decline while only 31.6% of firms who did faced this trend. One surprising result came as those who did not apply for the loan actually reported more improvement than those who did. A possible explanation for this could be that these companies simply did not need the loan as business remained healthy throughout the shutdowns. The goal of the program was to aid the struggling firms and it appears to have done so for a number of our respondents.

Q. How is business trending? Please indicate whether each of the above is increasing, not changing, or decreasing? N=448
Click to enlarge.

Survey responses for Volume Number 3 of the COVID-19 Print Business Indicators Report will offer insight on how employment is trending since the loan programs ended. One respondent offered the following response, which may end up being a common occurrence:

“PPP is used up, had to cut staff hours again.”

What’s Next?

There are several things that can happen in the next few months regarding the stimulus package:

• A deal can be reached, and the package can be released as a whole, most likely post-election
• Smaller bills targeted at certain sectors/groups can be approved at varying paces
• The President can issue an executive order to extend certain benefits

Regardless of how things end up, one thing is clear as we move into the last quarter of 2020 and begin looking into 2021: The demand for another stimulus is considerable. Households and businesses need some of these funds to ensure that recovery can continue at a robust pace. Without it, we may be stuck in a longer and slower period of growth until we reach pre-COVID levels.

NAPCO/PrUA COVID-19 Print Business Indicators Research

In addition to the usual index of current/leading indicators, Volume 3 of the report will include plenty of additional information. This includes a comparison of 2019 and 2020 first half sales to see exactly how hard the industry was hit. The report will also include information how firms are beginning to prepare for a post-COVID world as well as much more. Keep an eye out for the release of the next report in October. To download the executive summary for Volume 2, please click here

Participants in the COVID-19 Print Business Indicators Research Panel receive an enhanced report with additional information and industry insight, as well as exclusive updates between survey periods. If you are interested in joining the panel, please click here.

For any questions about the research or the panel, please reach out to me at dwilaj@printing.org