Washington Insider-- Thursday
Bigger Weekly Unemployment Checks Built a Buffer
Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
Fed Says Farm Payments Improving Farm Income Expectations
Overall U.S. economic activity remains below pre-pandemic levels and ag conditions vary across the country, according to the Federal Reserve's “Beige Book” report that recaps economic conditions. The report is issued two weeks ahead of the next Fed policy meeting.
In the Atlanta Fed district, the report said that “agricultural conditions remained weak.” There were some reports of hurricane damage. USDA reported that in August, year-over-year prices paid to farmers were up for cotton, rice, soybeans, and milk, but down for corn, cattle, broilers, and eggs.
In the Chicago Fed update, they noted, “Rising prices for key agricultural commodities and additional government support lifted expectations for farm income for the year.” But the report also cautioned, “There were reports that improved income prospects had eased stress on agricultural borrowers somewhat, though concerns remained for next year, when government support was expected to drop substantially.”
The Minneapolis Fed reported “agricultural conditions improved going into the harvest season, however low prices depressed the outlook for farm incomes.”
The Kansas City Fed struck a similar tone, noting, “Alongside government payments that were expected to help offset revenue losses, prices for most of the region's major agricultural commodities increased slightly in late September. However, apart from soybean and hog prices, agricultural prices generally remained low.”
NOAA Pegs August Derecho Damage At $7.5 Billion
The derecho that rolled through Iowa and other areas of the Midwest August 10 racked up $7.5 billion in damages, according to an assessment released by the National Oceanic and Atmospheric Administration (NOAA).
“A powerful derecho traveled from southeast South Dakota to Ohio, a path of 770 miles in 14 hours producing widespread winds greater than 100 mph,” NOAA said in a description of the event, with Iowa, Illinois, Minnesota, Indiana and Ohio the most-affected states.
“This derecho caused widespread damage to millions of acres of corn and soybean crops across central Iowa,” NOAA said. “There was also severe damage to homes, businesses and vehicles particularly in Cedar Rapids, Iowa. In addition, there were 15 tornadoes across northeastern Illinois several affecting the Chicago metropolitan area.”
The NOAA analysis indicated that the damages from Hurricane Sally, western/central droughts and heatwave and western wildfires are yet to be determined with damages from Hurricane Laura put at $14.0 billion.
The New York Times is reporting this week on some of the impacts of the $600 weekly unemployment benefit — even as the odds of a new stimulus package appear to be dwindling.
The report says the recent policy was “a remarkably effective expansion of the safety net. It helped pay many workers more than their lost wages. It enabled families to spend more than during normal times. It even allowed households to put away savings as the economy was teetering.”
Then the money stopped at the end of July. The article concludes that “it's clear, looking back, what happened next: Workers quickly burned through the reserves that the aid had given them.” Of the savings many households were able to build up over the course of four months of unusually generous government help, much of it was gone by the end of August.
Unemployed workers — and the economy at large — were effectively living off the exhaust fumes of the CARES Act heading into the fall, Peter Ganong, an economist at the University of Chicago who studied the data, told the Times.
The researchers can't yet tell what happened to these workers' finances in September, but the reality appears to be grim. If the $600 checks created something of a life preserver for jobless workers, that life preserver deflated quickly, Ganong said.
Two and a half months after the benefits ended, Congress and the White House have been unable to reach an agreement on a stimulus package to revive them. President Trump signaled this week that he wants a big deal, against the wishes of many Senate Republicans, but hopes have dimmed for an agreement before the election.
“It's honestly kind of staggering to me that Congress could leave us in this position,” said Daniel Lawson, who has been without a job in New York City since early in the pandemic. He believes he caught the coronavirus while working at a Trader Joe's in March and is still living with its effects: the fatigue, the brain fog, the sense of smell that hasn't returned to normal yet.
Faced with dwindling savings and constant bills, most households face a dilemma. “The choices are to stop spending on regular everyday purchases, or stop making payments like mortgages, student loans, auto loans, credit cards,” Ganong said. “That's a terrible choice for a family to have to make. It's a terrible choice for the macro economy.”
The analysis found unemployed workers did cut their spending after the $600 supplement ended, by an average of $93 a week across the month of August, compared with July. Ganong suspects that the decline in spending might have continued in September, based on the dwindling savings workers had left.
The checking accounts examined in the research, which were stripped of identifying information, come from Chase customers in 11 states where unemployment is paid out weekly, including California, New York and Wisconsin. In the data, workers receiving unemployment had those benefits deposited directly into their accounts. Workers who didn't receive such payments were treated as still employed. And there's little sign in account balances that the unemployed were moving large sums in or out of these accounts to other assets like savings accounts, making these checking accounts a good measure of the resources workers built up and drew down, the Times said.
Other research supports the idea that families have been saving a significant share of their unemployment insurance checks. In a survey fielded by the Federal Reserve Bank of New York in June, families reported setting aside nearly a quarter of their unemployment checks as savings. The New York Fed also found that nearly half of unemployment payments went toward paying down pre-existing debt.
Even modest-seeming drops in spending by the unemployed reflect difficult decisions at this stage. Charissa Ward, who lost the well-paying job she'd had for 15 years as a server at Disney World in Florida, has replaced some grocery store runs with trips to a food bank. And the school supplies she would normally buy for her three children were donated by co-workers from Disney instead, when the $600 dried up on the eve of a new school year.
“It's a mental strain on people emotionally, especially for someone like me that has worked since I was 15,” said Ward, who is 37. “I've never been in this situation.”
Allegra Troiano, who lives in Milwaukee, believed she was a few years away from retiring from her job preparing foreign students to study at American schools when the pandemic crushed the international education industry. Those students aren't coming anymore, and it's hard to know when they'll be back. Troiano, who is 64, was laid off in May, and for a while over the summer she believed that the extra federal aid would keep her going until she could return to work. Now she fears she may be forced into early retirement, collecting pensions and Social Security earlier than planned.
So, we will see. Clearly, the “special” unemployment benefits and other stimulus programs have wide support, but also strong political opposition. Economists say that the more the stimulus programs are cut, the stronger the economic headwinds against the economic recovery will be. Certainly, the fights over efforts to help workers endure the coronavirus shutdowns are important and should be watched closely by producers as they are debated this fall, Washington Insider believes.
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