- A lack of near-term stimulus will likely drive economic contraction in August, Ethan Harris, global economist at Bank of America, said in a Friday note.
- The Senate is on recess until September after making little headway on a new relief measure.
- The lack of renewed aid, when combined with President Trump’s ineffective executive orders, “means growth is likely to turn negative this month and only rebound if and when a major stimulus package is enacted,” Harris said.
- “It will take some combination of bad data, bad markets, and good politics” to force a compromise and enact much-needed stimulus, he added.
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The US economic recovery already began to weaken in July, and a lack of fresh stimulus could drive negative growth as soon as this month, Bank of America said Friday.
The Senate remains on recess after making little progress in negotiating a new fiscal relief package. The body is set to return to Washington in September, but if early August was anything to go by, deliberations over the bill’s size and facets could prevent new aid from reaching Americans for several weeks.
The stakes of Congress’ deliberations have never been higher, Ethan Harris, global economist at Bank of America, said in a note. March’s CARES Act “could be for naught,” as most programs have either run out of money or reached expiration. President Donald Trump’s executive orders will provide a mild benefit in the form of $300-per-week unemployment benefits, but payments won’t begin until September.
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The administration’s payroll tax is even less effective, Harris said, as the households hit hardest by the pandemic won’t benefit from the program.
“All of this means growth is likely to turn negative this month and only rebound if and when a major stimulus package is enacted,” he said. Though economic activity was flat through the start of August, “we expect the data to deteriorate in the next few weeks,” Harris added.
The drivers of an economic weakening already emerged. Unemployment insurance payouts from the Treasury Department sank more than 50% through July and August, the bank said. Some retail spending gauges showed activity stalling in recent weeks, and jobless claims made for the week ended Saturday unexpectedly jumped to 1.1 million from 971,000.
The coming weeks will be crucial in determining how much pressure lawmakers face in expediting stimulus talks. A compromise will likely not be reached until many Americans’ conditions worsen considerably, the economist said.
“Ultimately, it will take some combination of bad data, bad markets, and good politics to break the impasse,” Harris said. “Meanwhile, every passing week without meaningful legislation lengthens the mini-recession.”
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