BlackRock Investment Institute

Macro insights

Fiscal support flowing in the U.S.

The coronavirus pandemic has triggered an abrupt and deliberate stop to economic activity, leading to a large and immediate loss of income. This is being addressed with a comprehensive policy response, including a new suite of policy measures designed to help bridge cash flow pressures by backstopping household incomes and small businesses. Without these, there could be permanent damage to the economy. The focus now shifts to execution.

Some fiscal support – especially that coming through existing mechanisms such as unemployment insurance programs – has already started to flow to the private sector. The chart below illustrates that around $38 billion of unemployment insurance (UI) has been paid out to U.S. individuals since the labor market shock hit, eclipsing the pace of increase in UI payments during the global financial crisis (GFC).  The increase is consistent with the historic increase in initial jobless claims over the past month. Continuing jobless claims in the U.S. is forecast to rise close to 20 million this week.

U.S. daily unemployment insurance payments to individuals

Sources: BlackRock Investment Institute and the U.S. Treasury, with data from Haver Analytics. Notes: This chart shows the 12 month rolling sum of U.S. daily unemployment payments to individuals after the labor market shocks that resulted from the global financial crisis (beginning July 1 2008) and the current coronavirus crisis (beginning March 30, 2020).

There is more to come. The $38 billion is only a small share of the expected total of nearly $300 billion. And policy initiatives such as Paycheck Protection Program loans via the Small Business Administration, individual payments wired to U.S. individuals, and support for local and state governments via the coronavirus relief fund have already paid out a significant share of their current total allocations. Senate Democrats are already talking about another $500 billion in aid focused on states and municipalities.

One risk is that companies and households still need to cover a big loss in income. A survey from the Economic Policy Institute this week found millions still struggling to apply for unemployment insurance and other benefits.

We will be monitoring a range of indicators such as credit delinquencies, credit lines drawn and bank lending more broadly to track the policy implementation over the next few weeks. In addition, we will be monitoring signs of financial stresses in the consumer sector. In the Fed’s 2018 report on the wellbeing of U.S. households, nearly 40% of respondents replied that they would be unable to cover a $400 emergency expense with cash on hand.

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