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    What Is 13-3? Why a Debate Over the Fed Is Holding Up Stimulus Talks

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyWhat Is 13-3? Why a Debate Over the Fed Is Holding Up Stimulus TalksThe Fed’s emergency lending authorities are a key part of its job. Republicans want to curb them. Democrats are pushing back.Senate Republicans are trying to make sure that emergency programs backed by the Federal Reserve cannot be restarted after they expire on December 31.Credit…Anna Moneymaker for The New York TimesDec. 18, 2020Updated 7:40 p.m. ETAs markets melted down in March, the Federal Reserve unveiled novel programs meant to keep credit flowing to states, medium-sized businesses and big companies — and Congress handed Treasury Secretary Steven Mnuchin $454 billion to back up the effort.Nine months later, Senate Republicans are trying to make sure that those same programs cannot be restarted after Mr. Mnuchin lets them end on Dec. 31. Beyond preventing their reincarnation under the Biden administration, Republicans are seeking to insert language into a pandemic stimulus package that would limit the Fed’s powers going forward, potentially keeping it from lending to businesses and municipalities in future crises.The last-minute move has drawn Democratic ire, and it has imperiled the fate of relief legislation that economists say is sorely needed as households and businesses stare down a dark pandemic winter. Here is a rundown of how the Fed’s lending powers work and how Republicans are seeking to change them.The Fed can keep credit flowing when conditions are really bad.The Fed’s main and best-known job is setting interest rates to guide the economy. But the central bank was set up in 1913 in large part to stave off bank problems and financial panics — when people become nervous about the future and rush to withdraw their money from bank accounts and sell off stocks, bonds and other investments. Congress dramatically expanded the Fed’s powers to fight panics during the Great Depression, adding Section 13-3 to the Federal Reserve Act.The section allows the Fed to act as a lender of last resort during “unusual and exigent” circumstances — in short, when markets are not working normally because investors are exceptionally worried. The central bank used those powers extensively during the 2008 crisis, including to support politically unpopular bailouts of financial firms. Congress subsequently amended the Fed’s powers so that it would need Treasury’s blessing to roll out new emergency loan programs or to materially change existing ones.The programs provide confidence as much as credit.During the 2008 crisis, the Fed served primarily as a true lender of last resort — it mostly backed up the various financial markets by offering to step in if conditions got really bad. The 2020 emergency loan programs have been way more expansive. Last time, the Fed concentrated on parts of Wall Street most Americans know little about like the commercial paper market and primary dealers. This time, it reintroduced those measures, but it also unveiled new programs that have kept credit available in virtually every part of the economy. It has offered to buy municipal bonds, supported bank lending to small and medium-sized businesses, and bought up corporate debt.The sweeping package was a response to a real problem: Many markets were crashing in March. And the new programs generally worked. While the terms weren’t super generous and relatively few companies and state and local borrowers have taken advantage of these new programs, their existence gave investors confidence that the central bank would prevent a financial collapse.But things started getting messy in mid-November.Most lawmakers agreed that the Fed and Treasury had done a good job reopening credit markets and protecting the economy. But Senator Patrick J. Toomey, a Pennsylvania Republican, started to ask questions this summer about when the programs would end. He said he was worried that the Fed might overstep its boundaries and replace private lenders.After the election, other Republicans joined Mr. Toomey’s push to end the programs. Mr. Mnuchin announced on Nov. 19 that he believed Congress had intended for the five programs backed by the $454 billion Congress authorized to stop lending and buying bonds on Dec. 31. He closed them — while leaving a handful of mostly older programs open — and asked the Fed to return the money he had lent to the central bank.Business & EconomyLatest UpdatesUpdated Dec. 18, 2020, 12:25 p.m. ETLee Raymond, a former Exxon chief, will step down from JPMorgan Chase’s board.U.S. adds chip maker S.M.I.C. and drone maker DJI to its entity list.Volkswagen says semiconductor shortages will cause production delays.The Fed issued a statement saying it was dissatisfied with his choice, but agreed to give the money back.Democrats criticized the move as designed to limit the incoming Biden administration’s options. They began to discuss whether they could reclaim the funds and restart the programs once Mr. Biden took office and his Treasury secretary was confirmed, since Mr. Mnuchin’s decision to close them and claw back the funds rested on dubious legal ground.The new Republican move would cut off that option. Legislative language circulating early Friday suggested that it would prevent “any program or facility that is similar to any program or facility established” using the 2020 appropriation. While that would still allow the Fed to provide liquidity to Wall Street during a crisis, it could seriously limit the central bank’s freedom to lend to businesses, states and localities well into the future.In a statement, Senator Elizabeth Warren, Democrat of Massachusetts, called it an attempt to “to sabotage President Biden and our nation’s economy.”Mr. Toomey has defended his proposal as an effort to protect the Fed from politicization. For example, he said Democrats might try to make the Fed’s programs much more generous to states and local governments.The Treasury secretary would need to have the Fed’s approval to improve the terms to help favored borrowers. But the central bank might not readily agree, as it has generally approached its powers cautiously to avoid attracting political scrutiny and to maintain its status as a nonpartisan institution.Fed officials have avoided weighing in on the congressional showdown underway.“I won’t have anything to say on that beyond what we have already said — that Secretary Mnuchin, as Treasury secretary, would like for the programs to end as of Dec. 31” and that the Fed will give back the money as asked, Richard H. Clarida, the vice chairman of the Fed, said Friday on CNBC.More generally, he added that “we do believe that the 13-3 facilities” have been “very valuable.”Emily Cochrane More

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    Retail Sales Fell More Than Expected as Spending Slowed

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyRed Flags for Economy as Retail Sales Fall for a Second MonthDrops in November and October raise questions about how retailers are faring in the all-important holiday shopping season.Shoppers at Gateway Mall in Lincoln, Neb., on Black Friday. Retail sales fell 1.1 percent in November, the Commerce Department reported.Credit…Walker Pickering for The New York TimesMichael Corkery and Dec. 16, 2020Updated 5:15 p.m. ETConsumer spending has been one of the few bright spots in the pandemic-battered economy. Since the spring, Americans have spent more each month even in the face of mounting job losses, political turmoil and recurring virus outbreaks.But that streak is over now. U.S. retail sales declined last month and in October, raising questions about how retailers are faring in the all-important holiday shopping season and about the stability of the broader economy.Sales fell 1.1 percent in November — more than economists had predicted — as spending on categories like automobiles, electronic stores, clothing and restaurants and bars softened, according to a report from the Commerce Department on Wednesday.The Commerce Department also revised its tally for October to a 0.1 percent decline, from an increase of 0.3 percent that had been reported last month.Economists said the declines were “warning signs” that the economy was entering a rough patch and in need of a jolt from another round of government stimulus.“When the U.S. consumer fails to spend, the world’s economy feels it,” said Beth Ann Bovino, chief U.S. economist at S&P Global.The November slide, in particular, adds new urgency to this week’s discussion on Capitol Hill over a stimulus package. On Wednesday, top Democrats and Republicans were said to be nearing a $900 billion deal that would expand unemployment benefits and provide new stimulus checks to consumers.Consumer spending accounts for roughly 70 percent of total economic growth, so propping up retail sales is central to any plans to stoke a recovery. And economists have been warning that failure to enact more financial support for the unemployed would eventually jeopardize the progress made in reviving the economy.“Weak retail sales in the fall, along with a recent increase in unemployment insurance claims, are warning signs for the economy at the end of 2020,” Gus Faucher, chief economist at PNC Financial Services Group, said in a research note.The uncertainty around holiday spending has been exacerbated as retailers pushed annual sales events into October, in a bid to jump-start the season and prevent crowded stores and shipping delays in November. Many major chains reported sales gains in October, but they were not certain about how that would affect spending in November and December.Business & EconomyLatest UpdatesUpdated Dec. 16, 2020, 2:57 p.m. ETNew Mexico sends $1,200 payments to about 130,000 unemployed residents.Fed chair says the case for more pandemic aid ‘is very, very strong.’How Are You Managing the Holidays in a Pandemic?Mr. Faucher also noted that the boom in shopping this spring after virus restrictions were lifted reduced “the need for purchases at the end of the year.” Amazon’s “Prime Day,” an annual event for online deals, was held in October, and spurred most major chains to introduce bargains around the same time, which may have also encouraged earlier holiday spending.The report on Wednesday showed the steepest declines at electronics and appliance stores, gas stations, clothing stores, department stores and bars and restaurants. The decline in apparel spending has been part of a broader shift this year, as many Americans remain isolated at home, aren’t going to the office for work, have postponed events and are avoiding shopping at malls.Spending at bars and restaurants tumbled 4 percent from October and was down about 17 percent compared with a year earlier, reflecting the strain on these establishments. With restrictions on indoor dining taking effect again in cities like New York and public officials warning of a difficult winter ahead, spending at restaurants is likely to remain lower for several months. Spending on gasoline also declined in November, as more families opted not to travel for Thanksgiving; many people are planning to stay home for Christmas also. Auto sales fell 1.7 percent in November, after months of gains.Consumers have not been following normal shopping patterns this year, making month-to-month sales difficult to predict. Some analysts had not expected the rebound in sales to have lasted so long, given the grim economic realities for millions of Americans. By the summer, retail sales had returned to pre-pandemic levels, helped by previous rounds of stimulus, job growth and low interest rates.But the holiday season, which can make or break a retailer’s business for the year, has been difficult to gauge. Black Friday, which has traditionally signaled the start of the holiday shopping season, was also largely a bust for many retailers as cases were flaring. Some companies reported that in-person traffic that day declined by as much as 50 percent from last year, as shoppers concerned about the virus stayed away from the stores. Still, online sales have been strong through the holidays and November sales were up 4 percent over last year’s figures.The National Retail Federation, an industry trade group, pointed to the online increase from last year as a sign that the holiday season was off to a strong start for retailers. But the organization also said in a Wednesday release that additional fiscal stimulus from Congress was needed, particularly as the remainder of the season remains so unsure because of the spread of the virus.With the new concerns around shopping in person, retailers have been racing to accommodate a surge in shipping demand, grappling with new surcharges and delays with major carriers including UPS and FedEx.But there are limits on how much the boom in online shopping can prop up the overall economy. “There are only so many televisions you can buy,” said Ms. Bovino, the economist at S&P Global. “At some point, you reach saturation.”She said the decline in November sales was “much worse than expected” and reflected several troublesome realities. Unemployed Americans are not able to spend as freely on discretionary items or gifts. And for the workers who still have jobs and remain financially secure, Ms. Bovino said many of them stayed out of stores because of the rising cases.Consumers also spent more on groceries and building supplies in November — reflecting a new focus on necessities.“The economy is hitting a very rough patch,” Mr. Faucher said. “Although widespread vaccine distribution will support stronger economic growth by mid-2020, conditions will remain soft until then, especially if Congress is unable to pass another stimulus bill.”AdvertisementContinue reading the main story More

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    Fed Closes Out Wild Year as All Eyes Focus on Bond-Buying Program

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyFed Closes Out Wild Year as All Eyes Focus on Bond-Buying ProgramThe central bank’s meeting will wrap up Wednesday, as the Fed stares down a bifurcated economic outlook.Jerome H. Powell, the Federal Reserve chair, will likely need to walk a narrow line as he tries to explain how the Fed will proceed.Credit…Al Drago for The New York TimesDec. 16, 2020, 5:00 a.m. ETWASHINGTON — The Federal Reserve is wrapping up what might be the most activist year in its history with a final scheduled policy meeting this week, one at which it is expected to leave interest rates at rock bottom and to signal continued willingness to help the economy through the challenging pandemic era.Any policy changes out of this week’s gathering are expected to concentrate on the Fed’s large-scale bond-buying program, which it began in March. For a time, it pledged to buy as much government-backed debt as needed to help keep markets functioning before it settled into a steady pace of purchases. But the fate of that program is just one of several momentous questions that lie ahead.In the coming months, the policy-setting Federal Open Market Committee — a mix of governors in Washington and regional Fed presidents — will have to decide whether to ramp up or dial back bond purchases from the current pace of $120 billion per month, what specifically to buy, and how to communicate when they will stop.Fed governors, who oversee bank regulation, will have to consider in 2021 whether to extend tweaks put in place because of the pandemic. And Jerome H. Powell, the Fed chair, and his new, Democratic counterpart at the Treasury Department will have to decide whether to restart emergency loan programs that outgoing Treasury Secretary Steven Mnuchin is ending on his way out the door. Democrats have urged their renewal, and Republicans have warned against it.All of those decisions will be set against a fragmented economic backdrop: The recovery is sputtering in the near-term as the coronavirus spreads and keeps holiday travelers and shoppers at home, but the economy is expected to rebound sharply as a vaccine becomes widely available. The Fed’s monetary policies work with a lag, and the stark divide across time will make calibrating next steps all the more challenging.Mr. Powell will give his assessment of the economic outlook and answer reporter questions at a news conference following the 2 p.m. release of the Fed’s December policy statement. Officials will also release their quarterly economic estimates, which will offer a sense of what path they expect the unemployment rate, inflation and interest rates to follow over the coming years.Mr. Powell will likely need to walk a narrow line as he tries to explain how the Fed will proceed. Many investors are looking for more economic help in the near-term, and anything perceived as complacency could rattle them. Yet his colleagues, in recent speeches, have been divided over how much more the Fed needs to do now, which could make it difficult for the chair — who speaks, in part, as a representative for the Federal Open Market Committee — to present a conclusive message.The Fed has enacted a sweeping series of responses to cushion American workers and businesses against the pandemic’s economic fallout. It slashed interest rates to near-zero in March, rolled out its bond-buying campaign to soothe troubled markets, and unveiled a spate of programs to keep credit flowing to states and cities, small and medium-sized businesses and corporations.Those measures have largely achieved their goals. The central bank averted a financial system meltdown, borrowing costs have held at low levels across many credit markets, and interest rate-sensitive sectors like housing roared back after lockdowns. Yet the next stage could be harder: Millions of people remain out of work nine months into the crisis, many businesses are teetering on the brink, and while a vaccine is in sight, widespread immunity might still be months away.The Fed is also low on new tricks, but not entirely out of them. Officials could, as early as this week’s meeting, change the way they are buying bonds in order to have more of an economic impact.Policymakers are mulling whether to shift toward longer-term debt and away from short-term notes. That wonky maneuver may seem technical, but it could have the effect of holding down borrowing costs on things like mortgages and business loans and, in doing so, set the stage for stronger growth.“The economy is far more sensitive to longer-term rates,” said Priya Misra, global head of rates strategy at TD Securities. She pointed out that without Fed action, longer-term rates will rise as a deluge of Treasury securities enter the market to fund the government’s pandemic spending.But it is not a slam-dunk that such a change will happen at this meeting. Regional Fed presidents have expressed lukewarm appetite for changing the so-called quantitative easing, or Q.E., programs now.“If we need to offer more support or we need to prop up the support that we’ve offered, we can use Q.E. for that, including changing the duration,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said in a recent question-and-answer session. “But if you look at financial markets right now, I see no indication that they are misunderstanding where we’re headed and that we need to somehow do something different to get financial markets where we need them to be.”Business & EconomyLatest UpdatesUpdated Dec. 16, 2020, 6:52 a.m. ETStocks are rising as pandemic relief talks and vaccine developments advance.Advocacy groups are rushing to get aid to renters before a federal cutoff date.Companies crucial to vaccine distribution are seeing a flurry of investments.Conditions are evolving quickly. Since the Fed entered its premeeting quiet period, during which officials do not give speeches, virus cases have continued to climb, several real-time data points have pointed to economic weakening, and rates on the closely-watched 10-year Treasury bond have crept higher, making many types of credit a bit more expensive. At the same time, vaccines have been approved and early disbursement has begun.Even if the Fed leaves the contours of its bond-purchase program unchanged for now, economists think the central bank might update the way it talks about its plans for the future. The central bank has indicated that it might offer guidance on how long it plans to buy assets to keep markets performing smoothly and bolster the economy “fairly soon.” That is likely to entail tying its bond-buying plans to qualitative — rather than numbers-based — economic goals.J.P. Morgan analysts think officials might link the buying to the course of the virus by saying that they will “continue purchases for as long as the public health crisis weighs on economic activity,” Michael Feroli, the bank’s chief U.S. economist, wrote in a research note.Economists at Goldman Sachs expect the Fed to pledge that purchases will continue “until the labor market is on track to reach maximum employment and inflation is on track to reach 2 percent.”That wide gap in expectations, even among top Fed-watching firms, underlines why this could be a fraught meeting for Mr. Powell. Disappointing investor expectations could roil markets, but it is not entirely clear what market participants expect.The Fed’s November meeting minutes also raised the possibility that the Fed might take a look at the types of bonds it is buying. The Fed is currently buying about $80 billion worth of Treasury debt and $40 billion in mortgage-backed securities — or M.B.S. — per month. But the minutes show that a few officials worried that “maintaining the current pace of agency M.B.S. purchases could contribute to potential valuation pressures in housing markets.”Whatever tweaks do come are likely to cut in the direction of more overall support for the economy. There are still about 10 million fewer jobs than in February, real-time indicators of consumer spending are coming in soft as virus cases surge, and jobless claims are rocketing higher once again, dimming the near-term outlook.“As economic momentum slows and Covid cases surge, we look for monetary policymakers to fortify the bridge that supports the economy until vaccinations become widely available,” Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, wrote in a note previewing the meeting.The Fed will release a new set of quarterly economic projections at this meeting, and they are expected to reflect a more dire outlook in the near-term but also a stronger bounceback later on. But even with the vaccines coming, wild cards remain — including how much congressional support the economy will get in the near-term.Lawmakers are trying to hash out a compromise deal that would send households money and offer companies support, but Democrats and Republicans have remained divided over issues including liability protection and aid for state and local governments.The lack of a deal so far is one reason that Goldman Sachs economists expect the shift toward buying longer-dated debt at this meeting.“Although no one is under any illusions that a maturity extension is an adequate substitute for a fiscal package in offsetting the impact of the virus resurgence on businesses and workers, it might do some good,” they wrote in a research note. “At the very least, Fed officials might be weary of disappointing market expectations for an easing action in difficult times.”AdvertisementContinue reading the main story More

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    What Happens to the Unemployed When the Checks Run Out

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyWhat Happens to the Unemployed When the Checks Run OutMillions face a steep and immediate drop in spending power when federal jobless benefits end this month, with a sharp rise in the poverty rate.Volunteers distributed food donations last week in Newton Centre, Mass. Poverty declined in the first months of the pandemic, reflecting CARES Act relief, but has since surged.Credit…Cody O’Loughlin for The New York TimesDec. 14, 2020When jobless workers get their last unemployment check, the effect on spending is sharp and swift.Unemployed workers’ spending on food, clothes and other so-called nondurable goods immediately drops 12 percent, about twice as much as when they lost their job and went on unemployment insurance, University of Chicago researchers have found. Spending at drugstores falls 15 percent. Co-payments for visits to the doctor fall 14 percent. Spending on groceries falls 16 percent, or $46.30 a month, on average.Millions of Americans are less than two weeks from cutbacks like those. The last two federal emergency unemployment programs in the CARES Act, passed as the pandemic’s first wave surged in March, expire on Dec. 26.An analysis by the Century Foundation concluded that 12 million workers who rely on one or the other of these programs will lose them on that day. This will add to 4.4 million who will have already exhausted their federal unemployment benefits.It projected that fewer than three million of these workers will be eligible for what are known as extended benefits, which kick in when the unemployment rate in a state is exceptionally high and can last six to 20 weeks, depending on the state.If Congress and the administration are unable to hammer out a deal to provide additional relief, the others will be left with nothing.“It was obvious this would be totally inadequate,” said Stephen A. Wandner, an expert on unemployment insurance at the Upjohn Institute for Employment Research, who has argued for extending unemployment benefits for a longer period, especially at a time when jobs are so hard to come by.Mr. Wandner noted that unemployment benefits lasted up to 99 weeks — almost two years — as part of the recovery effort in the last recession. In 2003, when the nation was also recovering from recession, maximum benefits were extended as long as 72 weeks, or almost a year and a half.Joblessness will not only affect consumer spending. Nearly 12 million households fear they may not being able to meet their mortgage payments, according to a survey in October by Moody’s Analytics and Morning Consult. Millions of others can no longer afford their rent. And 37 percent of the unemployed said the coronavirus pandemic prevented them from looking for a job. “You are really putting coal in people’s stockings,” Mr. Wandner said.At the end of November, 16 million people reported they had not worked in the last seven days and were relying on unemployment insurance payments to make ends meet, according to a Census Bureau survey of Americans’ financial condition. Losing those checks will translate into immediate hardship. “Come Jan. 1, a lot of people are going to be on Defcon 1,” said Mark Zandi, chief economist at Moody’s Analytics.The expiring programs are Pandemic Unemployment Assistance, created for gig workers and others not covered by regular unemployment insurance, and Pandemic Emergency Unemployment Compensation, which extended benefits up to 13 weeks beyond their regular duration (from 12 to 30 weeks, depending on the state).The November Census survey found that about one in four people out of work was relying on savings or selling assets to meet spending needs. One-fifth said they were still using some of the so-called economic impact payment of $1,200 that most Americans got under the CARES Act in the spring. But that is running out fast. More than one in six said they were borrowing from friends and family.Pascal Noel, an economist at the University of Chicago, analyzed the consequences of expiring unemployment benefits with his colleague, Peter Ganong, in a study published last year. Mr. Noel noted that spending “falls substantially exactly in the month in which benefits expire, and it falls across the board.”And that kind of shock has consequences. Mark Aguiar of Princeton and Erik Hurst of the University of Chicago have estimated that the drop in grocery spending that Professors Ganong and Noel associate with the end of unemployment benefits leads to a deterioration in diet quality: a significant decline in household consumption of fresh fruit and a jump in the consumption of hot dogs and processed lunch meat.Business & EconomyLatest UpdatesUpdated Dec. 15, 2020, 7:19 a.m. ETSolar energy had one of its best years in the U.S. despite the pandemic.U.S. stocks set to open higher as vaccine rollout outweighs virus restrictions.Millions are about to lose jobless benefits. Expect a sharp drop in spending.Jesse Rothstein of the University of California, Berkeley, and Robert Valletta of the Federal Reserve Bank of San Francisco studied what happened when unemployment insurance ended for workers who lost their jobs during the recessions of 2001 or 2007-9. Household income declines $522 a month on average, they found.When unemployment checks run out, the poverty rate among families who received them rises from 20 percent to about one-third in the next six months, the researchers found. Other government programs, like food stamps, did not raise their income by much.The current crop of unemployed is already in bad shape. According to the Census Bureau, for instance, by the end of November, more than one person in 10 who had not worked in the past week was relying on federal nutrition assistance, also known as food stamps, to meet needs. That is up from one in 40 in mid-July, just before the expiration of another component of the CARES Act — a $600 weekly supplement to other unemployment benefits.Poverty, which actually declined in the first months of the pandemic — reflecting the extraordinary relief offered by the CARES Act through the spring and early summer — has snapped back with a vengeance. According to estimates by Bruce D. Meyer of the University of Chicago, James X. Sullivan of the University of Notre Dame and Jeehoon Han of Zhejiang University, 11.4 percent of Americans subsisted with incomes below the official poverty line by October, up from 9.3 percent in June.The checking accounts of the unemployed also reflect this reversal of fortunes since the early phases of CARES Act relief, according to an analysis by researchers at the JPMorgan Chase Institute and the University of Chicago. Their account balances more than doubled from January to July, helped by the supplemental unemployment payments and the economic impact check. In percentage terms, their gain was vastly greater even than for workers who kept their jobs. Their spending also surged, peaking in July.By the end of August, however, the last month in which the researchers tracked the finances of the unemployed, their median bank balances had shrunk by about a third since July, losing most of the cushion built up since March.“The typical family does still have somewhat of a cash buffer,” said Fiona Greig, co-president of the JPMorgan Chase Institute, “but it is declining precipitously.”Regular unemployment insurance in the United States remains among the least generous in the Organization for Economic Cooperation and Development, typically falling to zero after six months, barring extraordinary legislation. In Denmark or Portugal, by contrast, unemployment benefits replace around 80 percent of the lost wages of workers even two years after they lose their jobs.In the United States, jobless benefits add up to about 20 percent of the median income for a family with two children, according to data from the O.E.C.D. In Germany and Ireland, they amount to over 50 percent.Emergency legislation like the CARES Act has provided an intermittent boost to unemployed American workers during crises. But barring new action by Congress in the coming days, the safety net will revert to its previous state. Millions will fall through the cracks.AdvertisementContinue reading the main story More

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    States Try to Rescue Small Businesses as U.S. Aid Is Snarled

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesBritain’s Vaccine RolloutVaccine TrackerFAQ: Vaccines and MoreAdvertisementContinue reading the main storySupported byContinue reading the main storyStates Try to Rescue Small Businesses as U.S. Aid Is SnarledState governments are offering loans, grants and tax rebates, but budget constraints limit their impact.Kirk Meurer’s business installing office furniture in the Cleveland area dried up practically overnight when the pandemic began.Credit…Da’Shaunae Marisa for The New York TimesDec. 10, 2020, 5:00 a.m. ETWith the economic recovery faltering and federal aid stalled in Washington, state governments are stepping in to try to help small businesses survive the pandemic winter.The Colorado legislature held a special session last week to pass an economic aid package. Ohio is offering a new round of grants to restaurants, bars and other businesses affected by the pandemic. And in California, a new fund will use state money to backstop what could ultimately be hundreds of millions of dollars in private loans. Other states, led by both Republicans and Democrats, have announced or are considering similar measures.But there is a limit to what states can do. The pandemic has ravaged budgets, driving up costs and eroding tax revenues. And unlike the federal government, most states cannot run budget deficits.“We have done what we can do to pump money into small businesses so that people can continue to work,” said Gov. Mike DeWine of Ohio, a Republican. “From the jobs point of view and the economy point of view and the workers’ point of view and small businesses, we’ve got to get that help from the federal government. That’s the only place we can get it.”After months of false starts and on-again-off-again negotiations, there are signs of progress in Washington. Top Democrats last week embraced a $908 billion plan proposed by a bipartisan group of moderate senators. That plan would include nearly $300 billion in aid for small businesses, as well as smaller sums for unemployed workers, state and local governments and other groups. On Tuesday, the White House proposed its own $916 billion plan, which would include more than $400 billion for small businesses.But Democrats and Republicans still disagree on important issues, including aid for state and local governments and liability protection for businesses. Even if the two sides do reach a deal, it could be weeks before money starts flowing.Many small businesses say they can’t wait that long. A survey from the National Federation of Independent Business on Tuesday showed optimism falling and uncertainty rising as the nationwide surge in coronavirus cases leads governments to reimpose restrictions and consumers to pare their spending. Separate data from the Census Bureau shows an increasing share of small businesses cutting jobs, and other surveys have shown large numbers of businesses in danger of failing.If that happens, it could be a disaster for both state economies and state budgets. Local businesses are major sources of tax revenue — both directly and through their employees — and major drivers of economic activity. If they fail in large numbers, it will slow the economic recovery once the pandemic is over.“It becomes almost a death spiral if you can’t keep these businesses running,” said Tim Goodrich, executive director of state government relations for the National Federation of Independent Business.Kirk Meurer was on track to have one of his best years ever in his business installing office furniture in the Cleveland area. But when companies began sending their workers home last spring, his business dried up practically overnight.“Even though we didn’t have to shut down like the restaurants and bars and the travel industries, it didn’t matter,” he said. “The business wasn’t there.”After some delays, Mr. Meurer got money through the federal Paycheck Protection Program, which he thought would be enough to sustain him until business rebounded. But as the pandemic dragged on and offices pushed back their reopening dates to the summer, then to the fall, then into next year, it became clear the company would need more help to survive.“It’s amazing how fast you can burn through money when you’ve got nothing coming in and all the overhead to maintain,” Mr. Meurer said.In recent weeks, his company, Modular Systems Technicians, received a $10,000 grant from a new state fund to help small businesses. He also got money under a program that refunded $8 billion from the state workers’ compensation fund.“It helped,” Mr. Meurer he said. “It’s not nearly enough, but they did what they could.”The money for the Ohio grant program, and from some other recent state aid efforts, actually came from the federal government. As part of the $2.2 trillion CARES Act last spring, Congress created a $150 billion fund that states could tap in responding to the virus. They were given wide latitude in using the money — as long as they did so before the end of the year.As the pandemic has flared anew, however, it has become clear that the economic crisis will last well into next year, by which point the federal money will be gone and state budgets will be unable to pick up the slack. So states are racing to use what’s left of the CARES Act money to shore up their economies and build a buffer for the winter.“I think they’re terrified,” said Joseph Parilla, a fellow at the Brookings Institution who has studied state responses to the pandemic. “If they’re paying attention, they should be.”Eden Stein isn’t sure how much longer her San Francisco gallery and boutique can continue.Credit…Christie Hemm Klok for The New York TimesGov. Jared Polis of Colorado, a Democrat, recalled the legislature for a special session late last month to pass several relief measures, including a $57 million grant program for small businesses. In an interview, he cited Colorado’s slow recovery from the last recession a decade ago, when the failure to contain the foreclosure crisis left lasting scars on the state’s economy. Without further assistance — including federal aid — he fears a wave of business failures that would set off an equally damaging chain reaction, he said.“If we don’t help them get through this, will it ever come back?” Mr. Polis asked. “Sure, but it means years of boarded-up stores and restaurants on Main Streets across America if Democrats and Republicans can’t come together now to act.”Some states are trying creative ways to stretch resources. California last month established a “rebuilding fund,” which will use a comparatively small amount of public money to provide loan guarantees to encourage for-profit and nonprofit lenders to make low-interest loans to small businesses.The California program is aimed at the smallest businesses — most with fewer than 10 employees — and those in low-income and minority neighborhoods. Many were left out of the federal aid programs like the Paycheck Protection Program, which primarily helped somewhat larger employers.“P.P.P. never really served these kinds of businesses very well,” said Laura D. Tyson, an economist at the University of California, Berkeley, who helped design California’s program. “More and more of them are boarding up and closing down, and it’s a real hit to the community, a real hit to the quality of life in these communities.”Ms. Tyson said the loans should help businesses make investments to adapt to life during the pandemic — like investing in online ordering technology or outdoor dining — or to position themselves for the post-pandemic world. But the state can’t afford to cover day-to-day expenses the way the federal government did in the spring.Secession Art & Design, a gallery and boutique in San Francisco, has survived the first nine months of the pandemic through a combination of loans, donations from customers and an aggressive shift in strategy toward online sales, which had been only a small part of the business.But Eden Stein, who owns the 13-year-old business, said she wasn’t sure how long that could continue. California is reimposing restrictions on retail businesses, which could hurt sales during what she calls a make-or-break holiday season. Her lease is up in the spring, and she hasn’t decided whether to renew it.Ms. Stein is thinking of applying for a rebuilding loan from the state but is nervous about taking on more debt. She is applying for a grant under a separate state program, but that won’t be enough to sustain the business. She doesn’t know what the local economy will look like after the pandemic, she said, but it is essential for small businesses to have enough confidence to renew leases and plan for the long term.“I’m not concerned about how hard I can work, how I can connect with my customers or my community,” Ms. Stein said. “I am concerned that I will eventually run out of money.”AdvertisementContinue reading the main story More

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    A $900 Billion Plan Would Help the Economy, but Not Fix It

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesC.D.C. Shortens Quarantine PeriodsVaccine TrackerFAQAdvertisementContinue reading the main storySupported byContinue reading the main storynews analysisA $900 Billion Plan Would Help the Economy, but Not Fix ItWhile a compromise package gaining steam in Congress would provide urgent help to the economy, some people and businesses would be left out in the cold.The framework of a $908 billion stimulus plan includes several types of assistance that economists have been calling on Congress to approve for months.Credit…Anna Moneymaker for The New York TimesBy More