The Hardest Mile & Push to the Finish Line

By Diane Swonk, chief economist, Grant Thornton

What we hoped would be a sprint has turned into a marathon. We are in the hardest mile when fatigue sets in, causing our minds and bodies to hit a wall.Marathoners train for this inevitability, but most of us were caught unprepared.

Employment lost ground in December for the first time since April when the post-Thanksgiving surge in COVID cases triggered another round of layoffs at restaurants and bars. Traditional holiday parties and New Year’s celebrations were nearly nonexistent. Schools that had reopened were forced to close and move back online, which prompted job cuts in education.

Conditions will get worse before they get better. Cases, hospitalizations and fatalities have hit new records in the wake of family gatherings during the holidays.

More contagious variants of the virus have emerged. The speed with which they are spreading is staggering. Ireland has seen a tenfold increase in cases in the last month; it is now exceeding the U.K., which is a much larger country. Our health care system and morgues could become overwhelmed, which would force states to adopt much more aggressive containment measures.

Vaccinations are lagging. Dr. Anthony Fauci, who is joining President-elect Joe Biden’s COVID task force, is optimistic that the glitches at the outset of vaccinations can be resolved.

Fauci recently asserted that 100 million vaccinations in the first 100 days of the new administration is “a very realistic, important, achievable goal.” This is a 24/7 proposition and requires a reset to deploy vaccines currently in warehouses.

The newly passed, $900 billion in fiscal aid will help to blunt the pain we are enduring and help get us to herd immunity. Funds for vaccinations, testing and tracing were included in that plan and will be deployed to kick start the process. Biden has also pledged to set up federal vaccination sites.

Prospects for additional fiscal stimulus have picked up now that Democrats have gained a slim majority in the Senate. Republicans will likely join Democrats in approving additional stimulus. The goal will be to show unity. The events of January 6 rattled elected officials on both sides of the aisle. (Understatement.)

In our forecast, we have added another $700 billion in checks, unemployment insurance (UI) benefits and transfers to the states. We assumed:

  • An additional $1400 per adult, which brings it to $2000 per check, but limits checks for children under 17.
  • An extension of the current expansion in UI benefits from March to June.
  • Direct transfers to state and local governments.
  • Additional rent forbearance, student loan forgiveness and funding for small businesses. (The latter may come too late to save many.)

That brings total additional aid and stimulus to $1.6 trillion. Funds for infrastructure, including clean energy are also possible but not included in the initial ask by the new administration. To get any new legislation passed, all Democrats and independent Senator Bernie Sanders will be required to vote ”aye,” with the vice president casting the tie-breaking vote, unless Republicans can be persuaded.

This edition of Economic Currents takes a closer look at the outlook in light of recent tectonic shifts in Washington. COVID remains the largest challenge, with the third and largest wave making economic conditions worse before they start to improve. An additional $1.6 trillion in aid will provide a much needed shot of adrenaline when we hit our hardest mile and act as a tailwind for a rebound on the other side of the crisis.

We are still hoping to reach herd immunity by early autumn, which could be a stretch given the late rollout of vaccines. Biden has pledged to rejoin the World Health Organization (WHO) to better coordinate vaccinations across developed as well as developing countries. That will facilitate a broader reopening of the global economy and allow us to better hedge against the next pandemic.

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