Another stimulus package is “back on track,” with a $1 trillion-plus deal likely to be enacted by early August, Greg Valliere, chief U.S. policy strategist at AGF Investments, predicted in mid-June.
Two reasons are stoking momentum for the next package, according to Valliere.
First, the pandemic “obviously isn’t over yet,” he said. “New cases are spiking (in part because of more testing), and may stay at high levels because social distancing was [sometimes] ignored in recent protests. People are still tentative about going to restaurants, malls or on trips (the battered airline stocks are a barometer).”
A V-shaped recovery “never seemed very likely, and now a fresh wave of virus anxiety has Fed Chairman Jerome Powell worried about the considerable downside risks to the economy and the markets,” he said.
The Fed will lend extensively, Valliere said, “but Powell insists that Congress also has to act. And Treasury Secretary Steven Mnuchin has been increasingly adamant this week that another stimulus package is virtually mandatory as state and local layoffs loom this summer.”
The second reason a stimulus bill will get done is that the “three key factions in the stimulus debate all have skin in the game, and will push for their agendas,” Valliere said.
House Speaker Nancy Pelosi and the Democrats will press for “massive aid to state and local governments,” Valliere said, and “they’ll win at least $500 billion, but that may not be enough.”
Senate Majority Leader Mitch McConnell and the Republicans see “some type of liability protection for companies [as] a ‘must pass.’ The details aren’t clear — will there be a federal fund to aid companies that are sued? — but there will be some type of lawsuit protection in the final measure.”
President Donald Trump’s focus will be on tax cuts. “A lower payroll tax rate isn’t out of the question, as well as a tax bonus for people who return to work, and a possible tax credit for entertainment and dining out,” Valliere said.
All of the players, Valliere noted, “are willing to consider another cash payment to individuals, perhaps not as generous as the initial $1,200 checks.” However, a sticking point will be unemployment benefits, which expire at the end of July. “Something far less than the initial $600 per week is possible, but the focus will be on incentives to get people back to work,” Valliere opined.
Meanwhile, the Paycheck Protection Program, created under the CARES Act, had approved a total of $510.2 billion loans as of May 30, S&P Global reported. The average loan size for total PPP approvals was $114,000, with 4.475 million loans approved.
The average loan size for the first round of PPP stimulus was almost twice that size, at $206,000, with 1.66 million loans approved, S&P Global reported. “With approximately 30 million small businesses in the U.S., this was apparently not enough to meet significant small business demand,” S&P Global stated.
Funds distributed over $342 billion in less than two weeks, starting April 3, according to the SBA April 16 report.
Citing a Chamber of Commerce/Met Life May survey, conducted April 21-27, of the small businesses who applied for a PPP loan, approximately one-third said that they received a loan.
“For those who applied and did not receive a loan, the biggest reported issue was that the loan funds were gone before they could apply. For those who reported that they tried to apply but were unsuccessful, 39% reported that the loans were gone before they could apply,” S&P Global said.
The second round of PPP funds, announced on April 24 and injecting an additional $310 billion, started to address these problems, according to S&P Global.
“Roughly 85.5% of the total PPP loans were for $150,000 and under, and 26.4% of overall loan dollars were for loans in this range. Almost 80% of the total loan count was for loans $100,000 and under (64.6% was for loans $50,000 and under). About 0.7% (29,697 loans) were for amounts larger than $2 million (receiving 21.2% of the total loan money in PPP),” the report states.
In comparison, less than 1.57% of the total number of the first installment of PPP loans were for amounts larger than $2 million.