Direct cash payments can improve financial security, boost consumer spending, and may speed up the recovery, according to a letter from a group of economists calling on U.S. policymakers to keep providing direct cash payments to Americans until the economy is stronger.
The stimulus payments should be issued automatically, based on certain economic indicators such as the unemployment rate, until there is enough evidence that the economy is recovering, the group of mostly left-leaning economists said in an open letter organized by the Economic Security Project and The Justice Collaborative.
“The first round of economic impact payments were a lifeline that helped some get by for a few weeks,” the economists wrote. “Even after businesses start to re-open and jobs begin to come back, there will be significant economic fallout, and demand will continue to lag if people don’t have money to spend.”
The letter was signed by 153 economists, including Jason Furman, who chaired the Council of Economic Advisers during the Obama Administration; Claudia Sahm, a former Fed economist; Darrick Hamilton from the Kirwan Institute for the Study of Race and Ethnicity at The Ohio State University; and Indivar Dutta-Gupta, co-executive director at the Georgetown Center on Poverty and Inequality. Some of the signatories are advising the campaign of presumptive Democratic presidential nominee Joe Biden.
The stimulus payments issued in April under the $2.3 trillion CARES Act helped lift spending for lower-income households faster than higher-income households, with much of the cash going to essentials, according to an analysis by Harvard University’s Opportunity Insights.
The $600 supplement Congress added to weekly unemployment benefits is set to expire at the end of the month, leaving jobless Americans at risk of facing a cash cliff while jobs are still scarce.
Congressional lawmakers are on a two-week recess and will face pressure to make decisions when they reconvene in late July.
The U.S. government delivered far less food aid than it had pledged by the end of June, according to food bank managers and data from the agriculture department sent to Reuters, after it hired inexperienced companies to box food during the pandemic.
FILE PHOTO: People wait in line at a food bank at St. Bartholomew Church, during the outbreak of the coronavirus disease (COVID-19) in the Elmhurst section of Queens, New York City, New York, U.S., May 15, 2020. REUTERS/Brendan McDermid/File Photo
The Farmers to Families Food Box program, one of several new government efforts to relieve struggling Americans, aimed to take food from farmers typically produced for restaurants and deliver it to the millions of people who lost their jobs or were otherwise hit by the coronavirus lockdown.
But the program has drawn criticism from food banks, analysts and some U.S. senators for awarding contracts too often inexperienced vendors that we're unable to source the food and deliver it in a timely manner.
Data sent to Reuters shows the program fell short of its target to deliver $1.2 billion worth of food to food banks, churches, and other organizations in need by June 30, a goal announced when food box contracts were awarded to private venders on May 8.
The agency expects to verify a total of 27.5 million food boxes delivered from the first round of the program, a USDA representative said in an email. That is equivalent to $755.5 million, according to calculations by Reuters based on the average cost of food boxes provided by USDA, or 63% of the $1.2 billion pledged.
Overburdened food banks across the country were optimistic that the program would bring ready-to-deliver food to families in need.
The program, championed by the daughter of U.S. President Donald Trump, Ivanka Trump, sought to build a bridge between people unable to buy enough food and farmers who were dumping milk, euthanizing hogs, and destroying lettuce fields as demand from shuttered restaurants fell off.
But deliveries were slow to start and have amounted to less than promised as some of the companies involved had never worked with food banks or even wholesale food distribution. [L1N2CW2Y0]
“We’re getting about 60% of what we were told we would get,” said Brian Greene, CEO of the Houston Food Bank, in an email. “Some of it was vendors couldn’t do what they said they would do.”
The USDA representative, who asked not to be named, said the agency is continuing to review food deliveries to ensure quality and safety standards. USDA canceled two contracts within the first few weeks of the program and did not renew 16 others. The agency representative did not comment on the June 30 delivery shortfall.
The Trump administration announced up to $3 billion for the Food Box program in April as part of a broader aid initiative for farmers.
Last week, the USDA said it was renewing $1.2 billion in food box contracts from more than 185 food distributors to be delivered by the end of August. The agency is also offering new contracts to 16 new food distributors totaling $180 million.
‘SUPPOSED TO EASE THE BURDEN’
With vendors falling short on deliveries, food banks have reassigned employees to manage the program and volunteered their own trucks to get the food into the hands of those who need it.
“We’re dedicating significant staff time to coordinate these deliveries - in some case we have to do the deliveries ourselves,” said Greg Trotter, senior manager of public relations for the Greater Chicago Food Depository. “It was supposed to ease some burden from food banks. That has not been the case here for us.”
When the deliveries come through, Trotter said the program has provided high-quality food to a rising number of out-of-work Americans. The Greater Chicago Food Depository has seen a 90% increase in people served since January.
By early June, the number of Americans facing food insecurity doubled compared with pre-coronavirus, according to data from U.S. Census Bureau’s weekly Household Pulse Survey.
Among the vendors not renewed in the second round was event planner Texas-based CRE8AD8 LLC. The company, pronounced “Create a Date,” had to hire people for every role needed to fulfill its $39.13 million contracts.
According to the Houston Food Bank’s Greene, CRE8AD8 delivered just 17 of its 90 promised food box loads.
Big and mid-cap firms globally are expected to slash capital spending by an average 12% this year as they reel from the fallout of lockdowns and other measures imposed to rein in the coronavirus pandemic, analysts’ estimates show.
FILE PHOTO: Workers remove boards from windows in a local store, as phase one of reopening after lockdown begins, during the outbreak of the coronavirus disease (COVID-19) at 5th Avenue in New York City, New York, U.S., June 12, 2020. REUTERS/Eduardo Munoz/File Photo
The predicted cut is bigger than the 11.3% decline that occurred in 2009 in the wake of the global financial crisis and would be the steepest drop in the 14 years for which data compiled by Refinitiv is available.
“For many firms, the near-death experience of the lockdown - where cash flows have simply dried up - will have a long-run effect on their willingness to take risks and invest,” said Keith Wade, chief economist at British asset manager Schroders.
“Weaker investment will also hamper a recovery in productivity and reinforce the outcome of slower GDP growth.”
(Graphic: Estimates for corporate capital spending globally, here)
Reuters calculated average spending cuts by looking at estimates compiled by Refinitiv for nearly 4,000 firms.
By sector, energy, consumer discretionary, and real estate were seen taking the biggest axes to capital expenditure with cuts of 25%, 23%, and 20% forecasted respectively.
Among major names announcing big cuts, BP Plc (BP.L), Exxon Mobil (XOM.N), General Electric (GE.N) have all said they will slash 2020 CAPEX by at least 20%.
By country, U.S. companies are expected to slash CAPEX by 22%, Russian firms by 19.2%, and French firms by 13.4%. In Asia, South Korean companies led with an average CAPEX drop of 16% predicted, followed by Japanese firms with an 11% slide.
In China, which has managed to bring its coronavirus outbreak under control, the expected decline is much smaller at 4.5%.
The data also showed analysts expect companies to cut operating costs by 19.7% on average this year, which would also be the sharpest decline in at least 14 years. Revenue is seen falling by 5%.
Mark Litzerman, head of portfolio management at Wells Fargo Investment Institute, said different industries would show different rates of recovery.
“Hotels, restaurants and leisure, retail and airlines should revive faster, especially assuming the introduction of an effective vaccine,” he said, as they were hit harder and will recover sharply from a lower base.
A return to previous levels of profitability may take longer, however, due to permanent changes in consumer behavior, he added.