Washington Insider-- Tuesday
Economic Struggles
Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
White House Reviewing US-China Phase One Agreement
The Biden administration is reviewing the U.S.-China Phase One agreement, White House spokeswoman Jen Psaki confirmed to reporters Friday.
The new administration is approaching the U.S.-China relationship “from a position of strength, and that means coordinating and communicating with our allies and partners about how we're going to work with China,” she said. “Everything that the past administration has put in place is under review, as it relates to our national security approach, so I would not assume things are moving forward.”
This sparked concern that the Biden administration could walk away from the Phase One agreement, but Doug Barry, spokesman for the U.S.-China Business Council downplayed those worries. “We don't read too much into the process at this point,” Barry told Reuters. “China has 11 more months to fulfill its promises to purchase an additional $200 billion in U.S. products.”
The review is not a surprise and matches what sources signaled months ago would take place under the Biden administration. Plus, the agreement's purchase commitments cover two years — 2020 and 2021 — and other actions in the agreement have already been implemented relative to U.S. agriculture and other trade matters which have seen China undertake structural changes that would negatively impact prospects for U.S. agricultural and other trade.
Some Regulatory Actions Emerging From Biden Administration
The initial flurry of regulatory actions by the Biden administration has been to withdraw regulations that were not finalized by the Trump administration.
The White House has sent forward for review by the Office of Management and Budget (OMB) notices or regulatory actions to require the wearing of masks on public transportation and in stations, ports or similar transportation hubs, a temporary halt in residential evictions — both from Health and Human Services — and a delay in the effective date of the Trump administration's final rule limiting regulatory science that was issued by EPA. A federal judge had also put a halt to the EPA rule.
The new administration has embarked on a broad regulatory review of actions by the Trump administration which has resulted in some regulations or actions being either halted or suspended by several agencies.
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The New York Times reported late last week that the U.S. economic rebound had faltered at the end of 2020 as surging coronavirus cases kept people home.
U.S. gross domestic product rose 1% in the final three months of 2020, the Commerce Department said last week. That represented a sharp slowdown from the previous quarter, when business re-openings led to a record expansion of 7.5%.
The report capped what was, at least by one measure, the worst decline on record for a calendar year. And it underscored the challenge facing President Biden as he tries to revive the economy while quelling the pandemic. Democrats seized on the data as evidence that Congress should move quickly to approve more economic aid.
On an annualized basis, GDP increased at a 4% rate in the fourth quarter, down from 33.4% in the third quarter -- a reflection of the recovery following lockdowns.
The late-year slowdown reflected a sharp pullback in consumer activity in the face of the resurgent pandemic. Governors and mayors across the country last fall reimposed restrictions on restaurants, bars and other in-person businesses, and public health officials discouraged holiday travel. Many analysts believe economic output declined outright in November and December, although the government doesn't track GDP on a monthly basis.
In addition, the trillions of dollars in federal aid that helped power the third quarter's record-setting rebound faded later in the year. Personal income fell in the fourth quarter, as the loss of government assistance more than offset an increase in wages and salaries.
The rollout of coronavirus vaccines, though slower than hoped, offers the prospect that hotels, bars and other businesses hurt by the pandemic will see customers return later this year.
Adding to the optimism, the damage from the year-end slowdown does not appear to have spread to the broader economy, the Times said. Sectors less exposed to the pandemic, such as construction and manufacturing, have continued to grow. “It's worth emphasizing how much other sectors of the economy really kicked in to offset the softening in consumption,” said Robert Rosener, senior U.S. economist at Morgan Stanley.
Still, the economic turnaround won't happen overnight. Data from the Labor Department last week showed that 874,000 people applied for state unemployment benefits that week, and a further 427,000 filed for Pandemic Unemployment Assistance, an emergency federal program for people who don't qualify for regular benefits. Both totals were down from a week earlier.
Last week's GDP report showed the damage done by the pandemic — but also the role federal aid played in offsetting that damage.
Personal income and saving both rose in 2020 compared with 2019, despite the loss of millions of jobs. The aid allowed families that might otherwise have been devastated to pay rent and buy food — and, in doing so, prevented a much larger drop in spending. The Federal Reserve cut interest rates almost to zero, fueling sales of homes and automobiles. “But the truth is both Congress and the Fed acted very, very quickly, and I think that did save the economy from a much worse outcome,” the Times said.
Measured against the final quarter of 2019, GDP ended 2020 down 2.5%, making it the second-worst calendar year on record after a 2.8% contraction in 2008. Comparing 2020's output over all with the previous year GDP fell 3.5%, the worst since reliable records began after World War II. The economy has regained roughly three-quarters of the output lost during the collapse last spring, and a bit more than half of the jobs.
But by any measure, the economy has rebounded more quickly than nearly any forecaster initially expected. In May, economists at the Congressional Budget Office estimated that GDP would end the year down 5.6% and wouldn't reach its pre-pandemic level until well into 2022. Now, most forecasters expect it to hit that benchmark this year.
Last year's overall showing was “bad but not historically bad, and not as bad as what was experienced in the Great Recession, and not nearly as bad as what was expected midyear,” said Jason Furman, a Harvard economist who ran the Council of Economic Advisers under President Barack Obama.
Low-wage service workers — disproportionately Black or Hispanic — have borne the brunt of both the job losses and the virus itself, because many of them had to risk exposure at work. Unemployment benefits and other government programs have helped dampen the impact, but only for those able to receive them. School closings have pushed millions of parents, particularly mothers, out of the work force, and many may struggle to return to work.
“It's the tale of two economies,” said Constance Hunter, chief economist at the accounting firm KPMG. Workers who have been relatively unscathed by the recession are eager to resume spending as soon as the public health situation allows. But for the worst-hit groups, she said, “there is significant economic scarring potential.”
So, we will see. Media attention is now focusing on the fights over the next stimulus, if there is to be one. These scuffles are highly politicized, as is everything these days, and should be watched closely by producers as they proceed, Washington Insider believes.
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