(Bloomberg) -- Chances for a deal in Congress on a new, comprehensive stimulus package before September diminish with each passing day, leaving the U.S. economy limping and many businesses and millions of consumers coming up short.
Democrats and Republicans are focused on their party presidential nominating conventions this week and next. House Speaker Nancy Pelosi headed to California after rebuffing an overture from President Donald Trump’s Treasury secretary, Steven Mnuchin, to restart talks on a virus relief package without concessions.
Both chambers of Congress left Washington and had been scheduled to be gone until mid-September. But a financial crunch and political controversy involving the U.S. Postal Service prompted Pelosi to announce Sunday that the House would return later this week to vote on legislation that would prohibit the Postal Service from cutting service.
Some Democrats have been pushing Pelosi to vote on boosting funding for the post office, and White House Chief of Staff Mark Meadows is continuing to press for a small-scale rescue package that would include stimulus checks for individuals and aid for small businesses. He said the GOP would back $10 billion in funding for the post office that Democrats have been seeking.
“We will pass it tomorrow,” Meadows said Sunday on CNN’s “State of the Union” program. “The president will sign it. And this will all go away.”
However, Pelosi announced no other plans for votes, and she has repeatedly rejected any piecemeal deal on stimulus. A spokesman for Senate Majority Leader Mitch McConnell referred to the Kentucky Republican’s previous statement that Senators get 24 hour notice if they need to return to Washington.
The deadlock has persisted despite warnings from Federal Reserve officials, economists, governors and mayors that, with much of the earlier stimulus exhausted, the risk to the economy grows every day that goes by without a deal.
“If the economy has to wait until to the end of September, it will come to a virtual standstill between now and then, and vulnerable to anything else that goes wrong,” said Mark Zandi of Moody’s Analytics. “And given that we are in the middle of a pandemic, there is a lot that can go wrong.”
He estimates that delaying a new stimulus package would reduce gross domestic product at least 0.5% over the course of September, making it more likely that there will be increased unemployment by the end of that month.
Wall Street has been banking on a deal eventually being reached, but signs that the recovery is slowing have tamped down market enthusiasm. The S&P 500 slumped after fluctuating near all-time highs for much of the day on Friday and closed the week just 0.4% below its all-time high on Feb. 19, 2020.
Millions of people are relying on jobless benefits, which was evident from the June personal income data. Stimulus checks for individuals and the extra $600 in weekly unemployment benefits bolstered incomes despite widespread joblessness. The data showed unemployment benefits made up about 7% Americans’ incomes in the month, the biggest share on record.
That extra money helped fuel spending at retailers. U.S. total retail sales have now rebounded to pre-pandemic levels, which is a win for the economy. But spending at restaurants and bars and at clothing stores -- sectors that have been hit particularly hard by the pandemic -- are far from fully recovered. In addition, total consumer outlays, which includes spending on goods and services, have yet to fully recover.
That added boost to spending expired at the end of July.
Progress, and Perils
The July jobs report marked a third straight month of solid improvement for the labor market. Employers added a better-than-expected 1.76 million workers to payrolls in the month, and the unemployment rate declined further. At the same time, the report highlighted longer-term concerns: Payrolls remain 13 million below pre-pandemic levels, the number of people who have been out of work for 15 weeks or longer more than doubled from the previous month and labor force participation declined.
A more timely measure of the jobs market -- weekly applications for unemployment insurance in regular state programs -- dipped below 1 million for the first time since March. While still higher than the worst week in the 2007-2009 recession, the figures confirmed the employment picture is getting brighter -- but also that it has a very long way to go.
“I remain a little bit mystified as to why we haven’t gotten to yes,” Glenn Hubbard, chairman of the White House Council of Economic Advisers under President George W. Bush, told reporters Friday. “I do not share the optimism about a fast recovery that some conservative politicians seem to have.”
Dozens of issues and more than $1 trillion in total spending divided the White House and top Democrats when they suspended stimulus negotiations on Aug. 7.
$1 Trillion Gap
Pelosi and Senate Democratic leader Chuck Schumer said they’d cut $1 trillion from their original $3.5 trillion stimulus plan if Republicans would raise their initial proposal to $2 trillion from $1 trillion.
“We said we’ll meet you half way, we’ll come down a trillion, go up a trillion, to again meet the needs of the state and local government,” Pelosi said Friday.
But Mnuchin said there were issues that couldn’t be resolved by simply splitting the difference. Trump and the GOP remain opposed to the Democrats’ insistence on almost $1 trillion in aid to state and local governments.
The president, in a series of tweets on Friday, accused Democrats of standing in the way of additional unemployment aid, checks to individuals and assistance for small businesses.
Trump took executive action last week to tap $44 billion in disaster aid funds to provide $300 a week in extra unemployment aid. He also let businesses defer payroll taxes. Yet it’s unclear how quickly Americans will see the extra money. And some employers may continue to withhold deferred payroll taxes since under current law they will be owed early next year.
Although it’s unclear how much of an effect the actions will have, they gave the president and Republican lawmakers an answer for voters looking for action.
Fed officials have been warning for weeks that the economy needs another big fiscal infusion.
“If we go very long without somehow addressing the reduction and evaporation of that support, I think it’s going to show up in lower aggregate demand,” Chicago Fed President Charles Evans said last week, “and that would be very costly for the economy.”
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