Market concerns over a new COVID-19 relief bill could be overdone. This is because the household savings rate is extraordinarily high, and a limited normalization could keep the recovery going without additional budget relief until January 2021. Of course, the recovery would weaker than if more relief was provided to households and businesses, but it might just muddle though.
Does the US Economy Need More Stimulus?
Until mid-summer, the recovery had been on a V-shaped trajectory. But since then, the August NFP have shown increasing signs of slowing consumption and labour market momentum (see August NFP Show Economy at a Crossroad, 7 September 2020). Retail sales have been weaker than expected, initial unemployment claims have stopped falling, and the NY Fed Weekly Economic Index is flatlining.
This is likely to reflect, in part, the end of the $600 weekly supplemental unemployment benefit at end-July. Based on the Monthly Treasury Statement, this could have resulted in a $55bn, about 15%, MoM decline in August unemployment payments. A further relief bill appears unlikely to be voted on before the 3 November elections and therefore may not be agreed until a new Congress convenes in January 2021.
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