Despite the U.S. unemployment rate falling more than expected in the month of August, Allianz Chief Economic Adviser Mohamed El-Erian said Sunday he believes the country's economic recovery still has a "long road ahead."
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The U.S. economy added 1.4 million jobs in August with the unemployment rate falling to 8.4%, down sharply from 10.2% in June and a peak of 14.7% in April. El-Erian noted that while the jobs numbers from August on their own seem to show signs of optimism, the rate of improvement has been steadily declining.
"We're trying to come out of a very deep hole," El-Erian told CBS' "Face the Nation." "We have almost 30 million people who depend on unemployment benefits. So its a half full, half empty picture."
While he believes there are policies in place for a strong economic recovery, he argues the current political system "doesn't enable that" due to the fact that the country's problems are being exacerbated by the prolonged stalemate over a new round of coronavirus stimulus.
According to El-Erian, lawmakers on Capitol Hill should be focusing on a four-prong strategy to help stimulate the economy. The first step is relief through another round of coronavirus stimulus.
"We've heard a lot about it, El-Erian said. "Just helping people who are suffering for no reason of their own"
The second step is "living better with COVID" by establishing trust. El-Erian noted that economic activity will continue to be stifled unless Americans can trust that the people around them are healthy, and thus return to work.
"There's this notion of counterparty risk, or what you and I would call trust, in order for us to engage in economic activity. I have to trust that you're healthy, you have to trust that I'm healthy. And until we have a clear way of doing that, people are going to pull back," El-Erian said. "So we're not going to see the quick recovery in all sectors. And that comes at a time of increasing inequality, not just of income and wealth, but of opportunity."
The third step is capturing what the long term pressures on growth are, which currently include high industrial concentration and deglobalization, according to El-Erian.
The fourth and final step is reducing household economic insecurity.
"People have suffered. They've dug into their savings," El-Erian said. "They're not going to be as willing to spend in the future unless you give them more of a safety net."
The comments come as Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have reached "an informal agreement" to keep a stopgap government-wide funding bill at the end of September free of controversy or conflict as stimulus talks remain stalled.
Pelosi is refusing to negotiate on a new round of stimulus unless Republicans are willing to spend at least $2.5 trillion. Mnuchin told "Fox News Sunday" that he believes the package should be much narrower.
“The speaker has refused to sit down and negotiate unless we agree to something like a $2.5 trillion deal in advance,” Mnuchin said. “As you know, we put $3 trillion into the economy when the economy was completely shut down and we’ve now reopened the economy. Let’s do a more targeted bill now and if we need to do more in 30 days we’ll continue to do more, but let's not hold up the American workers and American businesses that need more support.”