A new fiscal cliff - when the money from the Feds runs out next month

While more than 30 million Americans are receiving unemployment benefits, significant government intervention has likely kept spending and employment from dropping even more. But the month of July is creeping, and with it comes to the potential end of a lot of this help from DC.

The reason that many of those out of work have been able to stay afloat is because of significant help from the Feds. allowing Americans to continue paying the bills and maintaining consumer spending.

As the novel coronavirus pandemic exploded in March and local authorities shut down large parts of the U.S. economy, the Trump administration and Congress softened the blow by moving quickly to roll out a patchwork of emergency aid.

The centerpiece: stimulus checks for most households and more generous unemployment benefits for tens of millions of newly jobless Americans.

The combined cash aid provided $3 in support for every $1 in lost income in April, Oxford Economics’ Gregory Daco estimated. And until it expires on July 31, the extra $600 weekly unemployment payment on average makes up for income lost due to unemployment and reduced hours, he said…..

Outlays by low-income households are now only about 3% below pre-crisis levels, versus minus 13% for high-income households.

Side note, those expanded benefits end in the last full week BEFORE July 31, which actually means the week that ends on July 25. And when those expanded benefits end, there will mean millions of Americans will face a severe income cliff.

When the extra benefits run out, jobless benefits will revert to their typical pre-pandemic levels, low by design to encourage people to look hard for work. In 15 states, the maximum unemployment benefit would replace less than half of the median earnings for a worker with a high school diploma, according to Kathryn Anne Edwards, a labor economist for the RAND Corporation.

That wouldn't be a big deal if jobs were waiting for people to come back to. But that's not happening, and new layoff announcements are starting to crop up due to that depressed consumer spending, especially in discretionary areas. And Wisconsin is part of those troubles, as shown by Marcus hotels announcing that hundreds of workers will lost jobs at the end of July.

Higher-end hotels with large dining and event facilities have been particularly affected by the sharp drop in travel, according to industry consultant Greg Hanis, who operates Hospitality Marketers International Inc.

Also, Milwaukee-area hotels, dealing with the cancellation of Summerfest and other big events, were hit with another blow last week when the Democratic National Convention announced it was converting its August meeting in Milwaukee to a largely virtual format.

Tom Daykin's article adds that federal support that was intended to keep workers on payrolls is going to fade out around the same time as the layoffs (coincidentally, I'm sure).

Marcus Hotels in April received Paycheck Protection Program forgivable loans totaling $11 million for nine properties. Those include the company's three upscale downtown Milwaukee hotels that are now laying off workers.

That federal cash was being used to keep 1,400 to 1,500 employees on the company's payroll for up to three months, Chief Executive Officer Greg Marcus told the Journal Sentinel then.

The program was meant to mainly help small businesses. But it included a provision allowing larger hotel and restaurant chains to seek loans for individual locations.

If you go to the PPP page on the Small Business Association’s site, you see that the layoffs also coincide with Marcus Hotels being able to keep all of the money it was given under PPP.

SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

So if the timeline is correct, Marcus Hotels will get to keep those taxpayer dollars, while hundreds of workers end up out of work at the end of July because the lodging business has remained depressed since the COVID-19 pandemic that existed in March still is not being held in check.

It makes me wonder how many other businesses are in this boat. It’s obvious that PPP inflated the job totals for May, and might also do the same for June. But without an extension of benefits or requirements to keep workers on the payroll to keep the money, it seems likely that many businesses will reduce staff to match economic reality.

It also leads to a showdown in July between Dems in the House who have already passed a large-scale package of additional stimulus and aid, and Senate GOPs who have made noises about not wanting to do much of anything. But with the economy already in danger of falling back after a couple months of fiscally aided expansion and the GOP losing in the polls for November, can that party afford to be the ones that decided to allow the economy to get worse?