With more than one million new cases reported this month alone, states and cities are restricting business activity and enforcing lockdown measures in response. Even though news of vaccine breakthroughs caused a rise in the stock market and now three are moving forward, the continuing stalemate over an economic stimulus package that is failing to meet the immediate need for economic relief is problematic. Federal Reserve Chairman Powell has repeatedly recommended fiscal relief to small businesses, the unemployed, states and cities to bolster the economy and said after a vaccine is distributed, industries like retail and other services will have a hard time recovering. Biden has detailed his plans to assist the economy, by first containing the virus and then investing in manufacturing jobs, and meeting with labor unions and business leaders. He has criticized both parties in Congress for the lack of a spending package.
Connecting coronavirus response to economic impact, the Brookings Institution found President-elect Biden’s victory in just 477 counties encompasses 70% of America’s economic output, whereas Trump’s base of 2,497 counties represents less than 33% of the economy. In 2016, Democratic candidate Hillary Clinton won counties representing 64% of U.S. output, whereas Trump’s accounted for just over a third. With President-elect Biden’s economic plan including raising corporate taxes from 21% to 28%, create 5 million jobs through large investments, including $400 billion into procurement measures to boost domestic manufacturing and an additional $300 billion into research and development, the impact in these counties will be watched.
The SBA is partnering with the MSI STEM R&D Consortium (MSRDC), which consists of minority-serving research institutions, industry, and government partners, to strengthen and expand small business innovation, research, and commercialization from underrepresented pools of science and engineering talent. Meanwhile the White House Office of Science and Technology Policy (OSTP) led the “Lab-to-Market: Connecting Communities to the U.S. Federal Innovation Ecosystem” as part of Global Entrepreneurship Week, an international movement to empower entrepreneurs and help make it possible for anyone, anywhere to start and scale. Also, the Federal and State Technology (FAST) Partnership funded 24 organizations this year, building the SBIR/STTR ecosystem through outreach, technical assistance, and financial support. Finally, several open solicitations ranging from NSF to DHS to DoD are available with early December and early January deadlines. All ARPA-E programs at the Department of Energy close early January. All of these efforts to drive small business growth, SBIR funding and the bringing of innovation to market will continue in the new administration and the OSTP is expected to regain stature and influence in the Biden administration.
The Covid-19 pandemic will exact a $16 trillion toll on the U.S. – four times the cost of the Great Recession – when adding the costs of lost lives and health to the direct economic impact, according to former U.S. Treasury Secretary Lawrence Summers and fellow Harvard University economist David Cutler who joined forces to publish their report in an essay in the Journal of the American Medical Association. While the spring lock down resulted in more than 22 million jobs vanishing, by September, the economy showed some progress by adding 661,000 jobs and dropping the unemployment rate from 8.4% to 7.9%. But 859,000 new jobs were expected and the unemployment rate is the highest ever ahead of a presidential election since monthly tracking began in 1948. Despite this, the president’s economic adviser, Larry Kudlow claims the economic recovery is not dependent on a stimulus package, which contradicts Fed Chair Jay Powell, who warned on October 6 that the economy might falter if another stimulus package doesn't make it through Congress.
The U.S. Economic Development Administration (EDA) has long facilitated effective delivery of federal economic development assistance to support long-term economic recovery planning in communities that have faced economic distress or harm as a result of natural disasters. As of July 31, 2020, EDA has invested $524,556,123 in projects across the U.S. to help communities recover from natural disasters in 2017, the majority of which was allocated to areas with the most impact. The EDA continues to offer grant funding for economic development with CARES Act funding.
With over 16 million Americans unemployed and 30 million collecting jobless benefits and some still have not received their stimulus check authorized four months ago. Since March, the IRS has issued about 160 million economic impact payments approved under the CARES Act, distributing hundreds of billions of dollars in aid through direct deposits, paper checks, and prepaid debit cards. But there are millions of eligible people who haven’t received a payment of up to $1200 per individual and $2,400 for married couples. The hardest part about reaching those individuals is they don’t normally file a tax return because they don’t have enough income, so the IRS simply doesn’t know who they are.
Today Speaker Nancy Pelosi (D-CA) said Democrats might cut their stimulus proposal to secure a deal with Republicans and speed Covid-19 relief, then come back after the November elections with additional agenda items. She urged action before the September rush to push through appropriations bills as the fiscal year comes to a close. In response, Treasury Secretary Steven Mnuchin suggested they finalize a deal when the House returns this Saturday and Majority Leader McConnell (R-KY) plans to introduce a scaled-back stimulus bill that would include a $300 a week enhanced unemployment benefit, money for small business relief, additional US Postal Service funding and protection for workers against lawsuits stemming from Covid-19 infections.
In July, the stimulus discussions were focused on provisions for additional $1200 stimulus checks, a boost to unemployment benefits and a measure to de-escalate the eviction crisis. The House Democrats passed the $3.5 trillion HEROES Act with a partisan vote in May while the Senate Republicans introduced a $1 trillion proposal on July 27 that never reached the senate floor. In the end, Congress adjourned with talks stalled until September after President Trump signed four executive orders to address these gaps on August 8, but ultimately caused confusion. The orders extend the federal unemployment supplement to $400 per week but rely on states to kick in funds which many governors say they cannot do, create a payroll tax holiday for those who earn less than $100,000 annually, extend student loan relief through the end of the year and ask administrators to seek funds to curb evictions. There are legal challenges to the extent of his orders and whether they are constitutional.
The New Business Preservation Act is a $2 billion bill sponsored by Senator Amy Klobuchar (D-MN) that would provide a one-to-one government match for investments in high-potential, scalable startups outside the traditional VC belts that get a disproportionate amount of funding—that means 80% of funding would go to Midwest, Southeast, and Southwest. Returns from exits would then be reinvested in the next generation of new businesses, creating a sustainable funding resource. Klobuchar teamed up with Senators Chris Coons (D-DE), Angus King (I-ME) and Tim Kaine (D-VA) to introduce the bill last year before the Covid-19 crisis, but has amplified efforts in response to it to help re-start the economy primarily in the Midwest and southern parts of the country. One decade ago, 62% of venture capital was concentrated in the greater metro areas of Silicon Valley, Boston-Cambridge, and New York City, according to data from Pitchbook. While the "Rise of the Rest" and similar efforts to attract VCs have drawn attention, this access to capital remains a major challenge. Today, that number has increased to 80%. The New Business Preservation Act was submitted to the Appropriations Committee for consideration as part of the stimulus package and has several champions pushing behind the scenes, including G2G.
On July 31, 2020, the eviction moratorium provided by the CARES Act expired. Experts say that the expiration leaves 23 million out of the 110 million renters vulnerable to eviction by the end of September. The University of California in Los Angeles (UCLA) found that 120,000 households, including 184,000 children, in Los Angeles county alone face homelessness when evictions continue. In South Carolina, 52% of renters cannot afford their rent and 185,000 residents are expected to lose their homes by the end of the year. While President Trump implemented an executive order aimed at “protecting people from eviction”, housing advocates say that it does not provide any meaningful relief, nor protection again eviction. A measure is needed to extend the eviction moratorium and provide rental assistance in order to prevent mass evictions and a surge in homelessness by tens of millions.
On August 13, US stocks came close to making financial history, topping the benchmark index of 3,386.15 before dipping. Investors are starting to look toward an eventual recovery as economic data is starting to show signs of stabilization and earnings have been better than expected, thereby fueling investor optimism. Investors have focused on the aggressive actions by the Federal Reserve and the US Treasury, which are using more federal funding interventions than during the Great Recession. The Federal Reserve provided up to $2.3 trillion in lending to support households, employers, financial markets, and state and local governments and cut its target for the federal funds rate, the rate banks pay to borrow from each other overnight, by a total of 1.5%age points since March 3, bringing it down to a range of 0-0.25%.
In addition, using a tool honed during the Great Recession of 2007-2009, the Fed offered forward guidance on the future path of its key interest rate, saying that rates will remain low until it is confident that the economy has weathered this crisis. The Fed also resumed purchasing massive amounts of securities, a key tool employed during the Great Recession, when the Fed bought trillions of long-term securities. Between mid-March and mid-June, the Fed’s portfolio of securities held outright grew from $3.9 trillion to $6.1 trillion. Through the Primary Dealer Credit Facility (PDCF), a program revived from the global financial crisis, the Fed is offering low interest rate (currently 0.25%) loans up to 90 days to 24 large financial institutions known as primary dealers. The Fed is helping banks as well by lowering the rate it charges banks for loans from its discount window by 1.5%age points, from 1.75% to 0.25%, lower than during the Great Recession. These loans are typically overnight so they are taken out at the end of one day and repaid the following morning, but the Fed extended the terms to 90 days.
The coronavirus loan program for small businesses closed with almost $134 billion in remaining money. The Small Business Administration, which runs the Paycheck Protection Program with the Treasury Department, stopped accepting new applications on August 1. Over 5.2 million loans totaling $525 billion were approved since the program launched April 3, according to the SBA. The average loan amount was $101,000. A proposal from Senate Republicans calls for using $190 billion in leftover PPP money and new funding to extend the current program through December 31 while letting smaller and disadvantaged companies hardest hit by the pandemic get a second loan. Senate Democrats introduced a similar proposal that differs on some details; for example, it would restrict eligibility to companies that have 100 or fewer workers instead of 300 or fewer in the GOP plan. Democrats have also called for more money for the separate Economic Injury Disaster Loan program. However, negotiations have been stalled and no changes to this program are expected until this fall.
State and Local Governments are struggling with extreme budget problems as they pay rising unemployment and health costs with plummeting revenue from sales, corporate and personal tax payments. State Departments in transportation and public transit are continuing to ask Congress to infuse $37 billion immediately, or transportation of hospital supplies, food, and commuters will be impacted. Estimates expect at least a $555 billion gap in state budgets through FY2022, and that the damage from these gaps could prove to be even worse than the Great Recession. As states balance their budgets, they will need to cut costs and jobs, which the Federal Reserve Chair Jerome Powell predicts will hinder economic recovery. Disagreements on how to handle the problem have contributed to the delay of finalizing an economic stimulus package in Congress. Democrats have proposed as much as $1 trillion to state budgets, while Senator Mitch McConnell believes that more funds will hinder state budget management. Meanwhile the problem extends to local governments, as nearly 1.2 million local government jobs have been lost since February and researchers indicate 2.8 million could be next. Furthermore, 700 cities have halted critical infrastructure and road projects and equipment purchases since before the pandemic.