Coronavirus stimulus won’t stop recession, economists warn

The Senate approved an unprecedented $2.2 trillion economic rescue package Wednesday night to help workers and businesses shut down by the coronavirus pandemic, but economists warned it won’t be enough to prevent a sharp recession and expectations grew that Congress will need to provide a fourth relief plan within a few months.

The measure includes direct payments of $1,200 to most Americans, plus $500 checks per child, at a cost to the government of $250 billion. It creates a $500 billion lending program for distressed businesses, cities, and states, plus a $367 billion employee retention fund for small businesses.

It provides $130 billion to hospitals, and four months of expanded unemployment insurance up to 39 weeks in most states.

House leaders said they would convene at 9 a.m. Friday to consider the bill and hold a voice vote; President Trump said he will sign it immediately upon passage.

The growing size of the package reflected the rapidly increasing harm to the economy from a nearly nationwide lockdown. Just a few days ago, officials had proposed a bill totaling $850 billion.

“This is certainly in terms of dollars, far and away the biggest ever done,” Mr. Trump said. “A lot of this money goes to jobs, jobs, jobs, and families, families, families.”

Economists and lawmakers alike said the massive plan is primarily a lifeline to help families and businesses get through the next few months, at best.

“It doesn’t help the economy,” conservative economist Stephen Moore said of the biggest economic relief package in history. “It just provides people some relief to get through the next couple of months. You’re going to need a real stimulus bill after this one that has tax cuts and regulatory reforms and liability reforms.”

Steven Hamilton, an assistant professor of economics at George Washington University, said the pandemic has plunged the U.S. economy into uncharted territory.

“I would expect the immediate economic impact to be at least three months, and then, best-case scenario, things are at least headed back in the right direction after six months,” he said. “But the effects will still be felt a year or more from now.”

Mr. Trump, asked Wednesday how long he expects the relief package to keep the economy going, replied, “Hopefully a long time.”

“If we have to go back [to Congress], we have to go back,” the president said.

Treasury Secretary Steven T. Mnuchin said the administration envisioned the aid lasting for about three months.

One of the first nationwide measures of the coronavirus’ impact on the economy will come on Thursday morning, when the Labor Department will report on the jobless claims for the past week. Some economists predict the U.S. could see around 3 million new unemployment claims, which would be about 12 times as many as the previous week.

“There is a very challenging economic story right in front of us, which is beginning now,” White House economic adviser Larry Kudlow said on Fox News Channel. “We’re doing the best we can to cushion the economic consequences of the virus.”

After expectations that the Senate would approve the bill easily Wednesday, several Republicans raised objections to a Democratic provision that could provide some people with more money in unemployment benefits than they earned while working. Senate Minority Leader Charles E. Schumer has bragged that he negotiated “unemployment on steroids.”

“We cannot encourage people to make more money in unemployment than they do with employment,” said Sen. Tim Scott, South Carolina Republican.

But Sen. Bernard Sanders of Vermont, who is still campaigning for the Democratic presidential nomination, said he was prepared to block the overall relief package unless the GOP senators drop their objections to the level of unemployment insurance.

Mr. Mnuchin downplayed the last-minute hurdle, saying he and the president had spoken to the Republican senators.

“I don’t think it will create incentives” against working, he told reporters. “Most Americans … want to keep their jobs.”

It was a sign of the pandemic’s massive hit to the economy that almost nobody was expecting the $2 trillion infusion for businesses and workers to restore some economic growth that had been robust only a month ago.

“This is not even a stimulus package,” said Senate Majority Leader Mitch McConnell, Kentucky Republican. “It is emergency relief.”

The package includes about $367 billion in loans and other relief for small businesses. Alfredo Ortiz, president and CEO of the Job Creators Network that represents small business, held conversations with Mr. Mnuchin in crafting the package and said he’s hoping it will limit the economic harm to a period of about 60 days.

“I think that’s what we need to be looking at here — maybe up to 90 days,” Mr. Ortiz said. “Once we get past this medical crisis, I think there’s going to be a tremendous amount of pent-up demand. People are going to want to go out, they’re going to want to have their lives back.”

The blows to the economy have been mounting. On Wednesday, the Mortgage Bankers Association reported that mortgage applications plunged 29.4% last week, as people trying to sell homes have cancelled showings during the outbreak. Because closings are done in person, economists expect sales will decline sharply. Target said Wednesday it was significantly rolling back its expansion plans, deciding to remodel 130 stores this year, less than half of 300 it had planned. It will open only 15 to 20 smaller format stores this year, down from the 36 originally planned.

The corporation that owns Pizza Hut, KFC and Taco Bell said in a regulatory filing that 7,000 of its restaurants worldwide are closed, including over 1,000 Pizza Hut Express locations in the U.S. and over 900 KFCs in Britain.

Stocks on Wednesday generally continued their rally on the developments with the Senate relief package. The Dow Jones Industrial Average rose 495 points, or 2.3%, although the index lost more than half of its gains in the final hour of trading as the snag over unemployment benefits emerged.

Mr. Moore said the pervasive economic harm of closing down many regions of the country and major industrial sectors underscores the correctness of Mr. Trump’s desire to reopen large portions of the country within a few weeks.

“Trump is doing the right thing by talking about getting the economy up and running again, that’s really critical,” Mr. Moore said. “The fact is, the recession is going to last — it depends on how long the economy is shut down. If it’s locked down for three months, then you’re talking about potentially a year-long depression. The economic damage compounds, bankruptcies compound, unemployment compounds, the disruptions to the supply chains — all of that gets ruined if this goes on for more than a month or two.”

He said he has two friends suffering from COVID-19, one of whom is on a respirator, and he understands the potential consequences for people of reopening the economy too soon.

Mr. Moore noted that Mr. Trump has called himself a “wartime president” partly because of the difficult decisions he’s facing.

“You really have to start asking how many trillions of dollars of damage are we willing to do to keep the virus contained,” Mr. Moore said. “And so it’s a hard calculation, but it’s a calculation we have to make. Wartime presidents have to make very tough decisions.”

The president defended his goal of reopening many parts of the country by Easter, and said he believes the economy will quickly shake off the effects of the virus.

“I don’t think it’s going to end up being such a rough patch,” Mr. Trump said. “I think it’s going to open up like a rocketship. Our country wants to get back to work.”

⦁ This article is based in part on wire-service reports.