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The Real Economic Catastrophe Hasn’t Hit Yet. Just Wait For August.

After a terrifying spring spent in lockdown and a summer of protests in the streets, things are going to get a lot worse in the fall.

Posted on June 10, 2020, at 11:32 a.m. ET

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More than 40 million people lost their jobs in the last few months, in the fastest and deepest economic slowdown ever recorded. More than half of all households with low incomes in the United States have experienced a loss of earnings, as have a quarter of all adults. The numbers are grim — but as bad as things look today, they’re on track to get much, much worse.

The US economy right now is like a jumbo jet that’s in a steady glide after both its engines flamed out. In about six weeks, it will likely crash into the side of a mountain.

What’s kept us in the air so far is an extraordinary government relief effort. In most states, evictions have been temporarily banned, preventing a mass homelessness crisis. Most federal student loan payments have been put on hold, removing one of the largest recurring monthly expenses that millions of people face. Banks were ordered to give their customers a six-month break on mortgage payments if requested.

Most importantly, and counterintuitively, household income sharply increased in April as hundreds of billions of dollars in lost wages were replaced by trillions in government spending. The government sent out more than 159 million stimulus payments of up to $1,200 per adult (more if you have kids), and more than 20 million unemployed people became eligible for an extra $600 a week in federal unemployment benefits. The result, according to Bloomberg, was the largest monthly increase in household income ever recorded.

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This happened in April, when there were far fewer things to spend your money on; shops and restaurants were closed, nobody went to the ball game or took the kids to a theme park, and a shaggy nation longed for a haircut. Meanwhile, the prospect of a massive economic crash meant that Americans who were still on the job were more likely to tuck money away that they might otherwise have spent. So the national savings rate — the share of people’s income that is saved rather than spent — hit 33%, according to the US Bureau of Economic Analysis, also the highest level ever recorded. In the same month that we reached the worst mass unemployment in living memory, Americans saved a total of $6.15 trillion — up by $4 trillion from the month prior.

Consumer spending plunges, incomes soar on federal payments https://t.co/bslE5mfA7i

The massive interventions that made all this possible will soon come to an end — but the unemployment won’t.

On July 31, the $600 federal unemployment payments going to unemployed people every week will end, and there’s no sign they’ll be replaced with anything nearly as generous. In fact, many Republicans want to replace them with nothing at all — and there’s also little sign that another round of one-time stimulus checks will get mailed out. So income for tens of millions of households is likely to nose-dive in August.

That will coincide with evictions returning after being put on hold for months. This month, about one-third of renters were unable to pay their rent in full or at all, despite all the stimulus money. A federal law that bans evictions in any properties financed by federally backed mortgages — more than a quarter of all households, according to one estimate — expires on July 25, just a week before millions of people’s main economic lifeline is pulled away. Unless they are extended, statewide orders banning all evictions in places that have been hardest hit by the unemployment crisis will also expire around then: Florida’s on July 1, California’s on July 28, and New York’s on Aug. 20.

As millions of people experience a sudden collapse of their income at the very moment their landlords are allowed to start kicking them out, other bills will also come due. Payments on millions of paused student loans will begin again at the beginning of October; the more than 4 million homeowners who received a six-month pause on their mortgage after April’s mass layoffs will need to start making payments again at the end of October.

Few seriously expect the US economy to recover as fast as those bills come due; the federal government’s own projections expect unemployment will remain frighteningly high well into next year, even as people return to work as the lockdowns are lifted. Many companies will only rehire workers as quickly as consumer demand returns, and in labor-heavy industries, such as restaurants, entertainment, and travel, nobody expects things to go back to normal anytime soon.

And across the economy, big employers will use this moment as a kind of workforce reset button — a chance to rethink how many workers they really want, outsource some jobs, offshore others, and eliminate some entirely. By some estimates, more than 40% of all the job losses of the last few months could be permanent, not temporary.

You might have noticed a few major things — like, well, the coronavirus pandemic — missing from this equation. If we’re really lucky, we won’t experience a nasty second wave of infections in the fall and early winter, spurring new rounds of attempted lockdowns shortly after the economic plane crashes into the mountain — lockdowns that will once again disproportionately affect Black people and people with low incomes who can't safely work from home. Fingers crossed on that one.

And I didn’t mention the nationwide protest movement that shows no sign of slowing down, or the US election that will be overheating in the fall, involving a phenomenally unpopular and wildly divisive president whose passionate supporters tend to distrust the government.

These are all ingredients in what Adam Elkus memorably described recently as the “omni-crisis” that we’re currently stumbling our way through. “The omni-crisis has significantly enlarged the space of possible outcomes beyond that normally considered day-to-day by most Americans,” he wrote. “And it is not clear how many people in positions of influence and authority recognize this.”

That will become clearer in the next few weeks as Congress considers what comes next. So far, the Democrat-controlled House has passed an expansive new relief bill with trillions in new spending, which was declared dead on arrival by the Republican-controlled Senate — and Republicans don’t seem to be in much of a hurry to even begin negotiations. There are hints that our political leaders understand the gravity of the crisis, but they may be simply incapable of rising to the moment. ●

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