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The first big gash of austerity: The cutback to the $600 boost to unemployment benefits reduced personal income by $667 billion (annualized) in August

The first big gash of austerity: The cutback to the $600 boost to unemployment benefits reduced personal income by $667 billion (annualized) in August

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Key takeaways:

  • Data released today by the Bureau of Economic Analysis showed that the expiration of enhanced unemployment insurance (UI) benefits pulled $667 billion in purchasing power out of the economy in August alone (expressed as an annualized amount).
  • So far, this first dose of austerity has not led to outright recession, largely because it has been overwhelmed by the reopening effect, with businesses reopening in the wake of coronavirus-induced shutdowns.
  • Over time, the austerity-driven drag on income growth is likely to overwhelm the reopening effect and lead to the U.S. reentering recession, absent a very large reversal in policy.

After losing 22.2 million jobs in March and April this year, 9.2 million jobs were created in May, June, and July. In August, the pace of monthly job growth fell to its slowest pace, with 1.4 million jobs created. In some sense, any job growth at all in August was a relief. In the beginning of the month, the first gash of austerity hit the economic recovery, with the enhanced $600 weekly unemployment insurance (UI) benefits cutting off. Data released today by the Bureau of Economic Analysis (BEA) show that this cut-off of enhanced UI benefits (the Pandemic Unemployment Compensation, or PUC) pulled $667 billion of purchasing power out of the U.S. economy in the month of August alone (expressed as an annualized amount). It would have been more, but some of the enhanced $600 payments spilled over into August data. One way to scale this impact is to express it as the equivalent of an across-the-board pay cut for all U.S. workers—in these terms it can be thought of as an economy-wide 7.1% pay cut. In September’s data, when the full $600 is completely gone from personal income data, this will rise to closer to 10%.

Figure 1 below shows UI benefits as a share of total wage and salary income in the U.S. economy over time, highlighting the extraordinary boost to incomes provided by the enhanced UI benefits in response to the COVID-19 shock at least until August, when the expiration of PUC caused UI benefits to fall sharply.

Figure 1
Figure 1

In any normal month, imposing austerity this sudden and this large would cause a recession that would play out as a sharp contraction of economic output and, very shortly thereafter (maybe even in the same month), employment would also fall. This raises the obvious question of how employment increased by 1.4 million in August, and will make any job gains at all in September a bit of a puzzle, on first glance.

The answer to the puzzle is clear: These are obviously not normal times. More specifically, there are two strong forces pushing the economy in different directions at the moment. Call them the reopening effect and the income effect.

The reopening effect is straightforward to explain. When large swathes of the economy shut down in March and April, the decline in output—or gross domestic product (GDP)—and employment was enormous. Since April, the pandemic-induced shutdowns of economic activity have begun reversing. Given how utterly enormous and widespread these shutdowns were, it is unsurprising that even partial reopenings have led to very large increases in GDP and employment from the COVID-19 trough of economic activity.

Figure 2 below shows data from the Federal Reserve Bank of Dallas’s Economic Mobility and Engagement Index (MEI). The MEI combines a number of data points on household’s mobility and trips away from home in recent months. It is an excellent summary measure of the extent of social distancing happening in the economy relative to pre-coronavirus trends. In the figure below, the index is set to average zero in February, and the lowest level of mobility (reached during March) is set to -100. As the graph shows, from the largest effect of social distancing seen in March, the economy has recovered well over half of its post-coronavirus fall in mobility by July, with a much slower pace of improvement thereafter. What this means is that recovery has indeed so far been driven by a very strong reopening effect. But more than half of this effect has already been “spent,” and its force in recent months is clearly waning. The waning force of the reopening effect in July and August is likely driven in large part by widespread resurgence of growing COVID-19 cases. This highlights yet again that public health policy is economic policy and that recovery will only proceed free of this constraint if a vaccine or effective treatment is found, or far better public health containment measures are adopted.

Figure 2
Figure 2

Perhaps the most striking thing about the months of coronavirus-induced shutdowns, however, was that while output and employment cratered, personal income actually rose, as the Coronavirus Aid, Relief and Economic Security (CARES) Act provided enhanced UI benefits and a nearly across-the-board Economic Impact Payment (EIP) to U.S. families. In a sense, by borrowing from the future to support the incomes of workers who had been laid off due to the coronavirus, the CARES Act erected a firewall between sectors directly forced to shut down due to COVID-19 (think restaurants, hotels and airlines) and those sectors that could continue to work (think grocery stores and online retail). If the 22.2 million workers who had been laid off in March and April had received no additional benefits from CARES, they would’ve been forced to radically reduce their consumption spending as their incomes collapsed, and this would have led the economic shock to spill over more widely across the economy. With the enhanced UI benefits cut off and no further EIP, we have seen the first large gash of austerity hit the recovery, which will work through the income effect to slow the recovery greatly in coming months.

There is one small caveat to the influence of the income effect—the rise in personal savings during the months of shutdown. While personal incomes did not fall during the months of shutdown, there was a great reduction in what this income could be spent on. Face-to-face services were shuttered, and so essentially no money was spent on them. The combination of stable (or even slightly rising) personal income and a reduced ability to spend meant that personal savings skyrocketed in those months. This increase in savings translated into purchasing power ready to spend once reopening began. This spending out of the accumulation of savings can delay the reckoning of the income effect for a while, but a few months of extra savings will not fully neutralize the negative income effect stemming from millions of unemployed workers collecting only stingy UI benefits (or none at all once durations expire and the enhanced eligibility requirements included in the CARES Act expire in December). Further, the increased spending out of accumulated personal savings will likely happen only slowly in coming months, and the pace of this will be affected by the same influences—public health policy choices—that dictate the pace of the reopening effect.

As we enter October, the reopening effect will likely continue to provide a mild boost to the economy’s growth, but a massive resurgence of the virus could spark reversal on this front. The stock of accumulated savings from the shutdown months will also provide a tailwind to consumption spending in coming months, but the massive negative effect on incomes stemming from the expiration of the enhanced UI benefits will weigh heavily on growth.

It is theoretically possible that the first two influences “win” over the third and a full economic recovery happens without the U.S. economy falling back into recession. But this is an extremely unlikely scenario. The first gash of austerity—the expiration of enhanced UI benefits—is almost enough by itself to slow the economy’s growth to zero in coming months. Layer on top of this the second big gash of coming austerity—state and local government cutbacks in response to the revenue collapse that occurred during the months of shutdown—and it seems nearly impossible to avoid a resurgence of recession before January, unless policymakers radically change course. A good place to start is a reestablishment of enhanced UI benefits and large-scale federal fiscal aid to state and local governments.

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Government

Federal Food Stamps Program Hits Record Costs In 2022

Federal Food Stamps Program Hits Record Costs In 2022

In early January, The Wall Street Journal Editorial Board warned that one peril of a…

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Federal Food Stamps Program Hits Record Costs In 2022

In early January, The Wall Street Journal Editorial Board warned that one peril of a large administrative state is the mischief agencies can get up to when no one is watching.

Specifically, they highlight the overreach of the Agriculture Department, which expanded food-stamp benefits by evading the process for determining benefits and end-running Congressional review.

Exhibit A in the over-reach is the fact that the cost of the federal food stamps program known as the Supplemental Nutrition Assistance Program (SNAP) increased to a record $119.5 billion in 2022, according to data released by the U.S. Department of Agriculture...

Food Stamp costs have literally exploded from $60.3 billion in 2019, the last year before the pandemic, to the record-setting $119.5 billion in 2022.

In 2019, the average monthly per person benefit was $129.83 in 2019, according to the U.S. Department of Agriculture. That increased by 78 percent to $230.88 in 2022.

Even more intriguing is the fact that the number of participants had increased from 35.7 million in 2019 to 41.2 million in 2022...

All of which is a little odd - the number of people on food stamps remains at record highs while the post-COVID-lockdown employment picture has improved dramatically...

Source: Bloomberg

If any of this surprises you, it really shouldn't given that 'you, the people' voted for the welfare state. However, as WSJ chided: "abuse of process doesn’t get much clearer than that."

In its first review of USDA, the GAO skewered Agriculture’s process for having violated the Congressional Review Act, noting that the “2021 [Thrifty Food Plan] meets the definition of a rule under the [Congressional Review Act] and no CRA exception applies. Therefore, the 2021 TFP is subject to the requirement that it be submitted to Congress.” GAO’s second report says “officials made this update without key project management and quality assurance practices in place.”

Abuse of process doesn’t get much clearer than that. The GAO review won’t unwind the increase, which requires action by the USDA. But the GAO report should resonate with taxpayers who don’t like to see the politicization of a process meant to provide nutrition to those in need, not act as a vehicle for partisan agency staffers to impose their agenda without Congressional approval.

All of this undermines transparency and accountability for a program that provided food stamps to some 41 million people in 2021. The Biden Administration is using the cover of the pandemic to expand the entitlement state beyond what Congress authorized.

The question now is, will House Republicans draw attention to this lawlessness and use their power of the purse to stop it to the extent possible with a Democratic Senate.

And don't forget, the US economy is "strong as hell."

Tyler Durden Sat, 01/28/2023 - 09:55

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Spread & Containment

A Royal Caribbean Cruise Line Adult Favorite Has Not Come Back

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn’t been brought back.

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The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn't been brought back.

In the early days of Royal Caribbean Group's (RCL) - Get Free Report return from its 15-month covid pandemic shutdown, cruising looked a lot different. Ships sailed with limited capacities, masks were required in most indoor areas, and social distancing was a thing.

Keeping people six feet apart made certain aspects of taking a cruise impossible. Some were made easier by the lower passenger counts. For example, all Royal Caribbean Windjammer buffets required reservations to keep the crowds down, but in practice that system was generally not needed because capacities were never reached.

Dance parties and nightclub-style events had to be held on the pool decks or in larger spaces, and shows in the big theaters left open seats between parties traveling together. In most cases, accommodations were made and events more or less happened in a sort of normal fashion.

A few very popular events were not possible, however, in an environment where keeping six feet between passengers was a goal. Two of those events -- the first night balloon drop and the adult "Crazy Quest" game show -- simply did not work with social-distancing requirements.

One of those popular events has now made its comeback while the second appears to still be missing (aside from a few one-off appearances).

TheStreet

The Quest Is Still Mostly Missing

In late November, Royal Caribbean's adult scavenger hunt, "The Quest," (sometimes known as "Crazy Quest") began appearing on select sailings. And at the time it appeared like it was coming back across the fleet: A number of people posted about the return of the interactive adult game show in an unofficial Royal Caribbean Facebook group.

It first appeared during a Wonder of the Seas transatlantic sailing.

Since, then its appearances continue to be spotty and it has not returned on a fleetwide basis. This might not be due to any covid-related issues directly, but covid may play a role.

On some ships, Studio B, which hosts "The Quest," has been used for show rehearsals. That has been more of an issue with the trouble Royal Caribbean has had in getting new crew members onboard. And while that staffing issue has been improving, some shows may not have had full complements of performers, so using the space for rehearsal has been a continuing need.

In addition, while covid rules have gone away, covid has not, and ill cast members may force the need for more rehearsals.

Royal Caribbean has not publicly commented on when (or whether) "The Quest" will make a full comeback

Royal Caribbean Balloon Drops Are Back   

Before the pandemic, Royal Caribbean kicked off many of its cruises with a balloon drop on the Royal Promenade. That went away because it forced people to cluster as music was performed and, at midnight, balloons fell from the ceiling.

Now, the cruise line has brought back the balloon drop, albeit with a twist. The drop itself is appearing on activity schedules for upcoming Royal Caribbean cruises. Immediately after it, however, the cruise line has added something new: "The Big Recycle Balloon Pickup."

Most of the dropped balloons get popped during the drop. Previously, crewmembers picked up the used balloons. Now, the cruise line has made it a "fun" passenger activity.

"Get environmentally friendly as you help us gather our 100% biodegradable balloons in recycle baskets," the cruise line shared in its app. 

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What’s Still Missing on Royal Caribbean Cruises Post Covid

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn’t been brought back.

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The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn't been brought back.

In the early days of Royal Caribbean Group's (RCL) - Get Free Report return from its 15-month covid pandemic shutdown, cruising looked a lot different. Ships sailed with limited capacities, masks were required in most indoor areas, and social distancing was a thing.

Keeping people six feet apart made certain aspects of taking a cruise impossible. Some were made easier by the lower passenger counts. For example, all Royal Caribbean Windjammer buffets required reservations to keep the crowds down, but in practice that system was generally not needed because capacities were never reached.

Dance parties and nightclub-style events had to be held on the pool decks or in larger spaces, and shows in the big theaters left open seats between parties traveling together. In most cases, accommodations were made and events more or less happened in a sort of normal fashion.

A few very popular events were not possible, however, in an environment where keeping six feet between passengers was a goal. Two of those events -- the first night balloon drop and the adult "Crazy Quest" game show -- simply did not work with social-distancing requirements.

One of those popular events has now made its comeback while the second appears to still be missing (aside from a few one-off appearances).

TheStreet

The Quest Is Still Mostly Missing

In late November, Royal Caribbean's adult scavenger hunt, "The Quest," (sometimes known as "Crazy Quest") began appearing on select sailings. And at the time it appeared like it was coming back across the fleet: A number of people posted about the return of the interactive adult game show in an unofficial Royal Caribbean Facebook group.

It first appeared during a Wonder of the Seas transatlantic sailing.

Since, then its appearances continue to be spotty and it has not returned on a fleetwide basis. This might not be due to any covid-related issues directly, but covid may play a role.

On some ships, Studio B, which hosts "The Quest," has been used for show rehearsals. That has been more of an issue with the trouble Royal Caribbean has had in getting new crew members onboard. And while that staffing issue has been improving, some shows may not have had full complements of performers, so using the space for rehearsal has been a continuing need.

In addition, while covid rules have gone away, covid has not, and ill cast members may force the need for more rehearsals.

Royal Caribbean has not publicly commented on when (or whether) "The Quest" will make a full comeback

Royal Caribbean Balloon Drops Are Back   

Before the pandemic, Royal Caribbean kicked off many of its cruises with a balloon drop on the Royal Promenade. That went away because it forced people to cluster as music was performed and, at midnight, balloons fell from the ceiling.

Now, the cruise line has brought back the balloon drop, albeit with a twist. The drop itself is appearing on activity schedules for upcoming Royal Caribbean cruises. Immediately after it, however, the cruise line has added something new: "The Big Recycle Balloon Pickup."

Most of the dropped balloons get popped during the drop. Previously, crewmembers picked up the used balloons. Now, the cruise line has made it a "fun" passenger activity.

"Get environmentally friendly as you help us gather our 100% biodegradable balloons in recycle baskets," the cruise line shared in its app. 

Read More

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