US State Aid at a Glance

Eliza Przeździecka

Head of Economic Research, AmCham

 

The developments related to the COVID-19 epidemic have been changing as nobody expected and seen before.  First, Chinese production was hit the hardest, and we witness the terrifying pandemic explosion in Italy later on. Today, entire world gone to total crisis – in health and economy as well. This situation will change business, institutions, countries and… us. It will touch deeply our perception of our working mode, daily organization and life. None such a crash has changed so heavily ways of people thinking and working. The Great Financial Crisis, which we remember as the most significant for modern business, had its roots in financial markets, and spill-over effect was relatively easy to predict. This time everything is unpredictable, extended in time and fear is of the utmost importance. 

All are hit 

Very first negative effects are seen the same in all economies: aircrafts, bus/train transport (run almost without passengers), bars, restaurants and cinemas are closed, factories almost in all industrial manufacturing sectors limited or stop production. Just a few notified growth – IT general, and particular computer services, digital communication services, online services, incl. e-commerce. This crisis has one very unusual feature – it is very similar in all countries. Economic results will definitely be not comparable in absolute values, nevertheless all countries administrations would do their best to design the most appropriate anti-crisis instruments for business. As always in the global world, all eyes are turned on the world's largest economies. China is slowly licking its wounds after the largest number of illnesses notified so far and opening up again in everyday life. The United States is a little behind schedule in this regard, as the number of cases is constantly increasing there. According to the Wall Street Journal, the coronavirus pandemic could trigger the shedding of 5.9 million jobs by the end of April, according to U.S. Travel Association and Tourism Economics data. The losses could cause the U.S. unemployment rate to double to 7.1% by the end of April. The experts predict, that It could also result in a potential loss of $910 million in travel-related economic output in 2020, seven times that of the aftermath of 9/11.  

Most goes down 

Analysts predict  that the disruption to businesses from coronavirus could lead to 15,000 permanent retail store closures in 2020, with the Economic Policy Institute predicting that the disease outbreak could potentially wipe out 3 million jobs from the U.S. economy before this summer.  An indicator measuring U.S. manufacturing and services activity dropped at its lowest rate over a decade. IHS Markit says that U.S. is likely already in a recession. Its measure for the U.S. Composite Output Index decreased to 40.5 in March from 49.6 last month—its sharpest drop since October 2009.  

Some economists say that growth in the USA will go from 2% to ca. 1,5% however they are increasing the odds of the recession in 2020 to 50-50. 

Contrary, there are some examples how U.S. companies respond to coronavirus pandemic:

  • 200  telecoms, internet  service  providers  waive  late  fees, 
  • not  terminate  service for  those  unable  to  pay  bills, 
  • Walmart  will  hire  150K  new  workers  by the end of May ,
  • Domino’s  expects  to  hire  10K  workers,  
  • FDA  streamlined  drug  approval  to  weeks  vs. 2 to 3  years,  
  • Adobe, Google –  e-learning  tools  for  schools, universities  and  parents.  

State aid 

However, to fight the coronavirus pandemic, the White House administration is preparing an aid program. Initially it had been worth $1 trillion, but while all cards were on the table, the stimulus package is estimated $2 trillion (over 8 trillion zloty). This is the largest rescue package in American history, "this is a wartime level of investment into our nation,” said Senate Majority Leader Mitch McConnell. 

The White House and Senate leaders reached a deal on a massive stimulus package on March 25. The package includes providing tax rebates, 4-month expanded unemployment benefits and a slew of business tax-relief provisions aimed at shoring up individual, family and business finances. 

The deal also assumes $500 billion for a major corporate liquidity program through the Federal Reserve, $367 billion for a small business loan program, $100 billion for hospitals and $150 billion for state and local governments.  

The legislation will provide for one-time checks worth $1,200 to many individual Americans and $2,400 to married couples, with $500 extra for each child, with the assistance capped above certain income levels. Those payments would be in addition to a broad expansion in unemployment benefits, which would be extended to nontraditional employees, including gig workers and freelancers. The agreement is also set to increase current unemployment assistance by $600 a week for four months.  The deal hammered out by negotiators provides $30 billion in emergency education funding, $25 billion in emergency transit funding and creates an employee retention tax credit to incentivize businesses to keep workers on payroll during the crisis. Expanded unemployment benefits that could cost more than $200 billion.  

The package would also "stabilize" key industrial sectors and give support (in cash and in kind) to hospitals and other healthcare providers which were having difficulty getting equipment.   

To the sectors hardest and immediately hit by the epidemic and later by crisis, the aid package will also provide a direct provision: $25 billion in direct financial aid to struggling airlines and $4 billion for air cargo carriers.   

Immediate indirect support is intended for American biggest companies that could face bankruptcy without federal intervention. Hundreds of billions of dollars in buffer capital for the Treasury Department will allow the Fed to hand out an additional $4 trillion in loans to distressed companies such as U.S. airlines and Boeing, the nation’s leading airplane manufacturer.  

Optimism under the virus 

While entire plan was still under negotiations, but the distance of a deal has shrunk, the Dow Jones opened in March 24 surging to its biggest one-day gain since 1933. Analysts hope it is not just a flash in the pan in this critical momentum in the economy.  

The shock of the coronavirus pandemic to the American economy is best evidenced by the fact that in subsequent states there are websites where you can apply for unemployment benefits. Pennsylvania only received 70,000 applications in one day.  

The virus and the associated precautions plunge economy. One decision entail another: since Ford and General Motors announced last week, that they would stop production lines to protect workers' health, hundreds of their suppliers worldwide would also suffer. When business in the US stops, many countries would feel this shutdown in their pockets.Thus, the more hope the world places in the plan to save the economy soon to be adopted by the American administration.