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The massive $2.2 trillion stimulus package signed into law by President Trump at the end of March will dull the economic pain caused by the coronavirus pandemic, which has brought American life to a grinding halt, according to a new analysis from the Penn Wharton Budget Model.
The CARES Act included a one-time payment of up to $1,200 for Americans earning less than $99,000, $350 billion in forgivable loans for small businesses to maintain payroll, an expansion of unemployment benefits, money for hard-hit hospitals and a $500 billion fund for bigger corporations and industries.
Without its passage, the U.S. economy would have contracted at an annualized rate of 37 percent in the second quarter, while unemployment would have spiked to 12 percent by the third quarter, according to the Penn Wharton researchers.
But the researchers believe the bill’s passage will blunt the impact of the crisis, predicting that GDP will shrink by 30 percent in April, May and June, with unemployment rising to 11 percent in the third quarter.
The largest relief bill in recent memory will prevent the U.S. economy from contracting by 7 percentage points and will slow the rise in unemployment by 1 percentage point in the coming months, according to the researchers. That amounts to the saving of 1.5 million jobs by the third quarter of the year that otherwise may have disappeared because of the outbreak.
"Although the increase hardly covers the GDP lost from the pandemic, the effects on jobs will be substantial," the report said.
One of the key elements of the legislation -- cash checks for low- and middle-income Americans -- costs about $290 billion and will lead to a $123 billion increase in growth over the next two years. Broadening unemployment benefits by $600 per week for the next four months, meanwhile, costs about $260 billion and will increase GDP by $111 billion over the next two years, researchers estimated.
The Labor Department's weekly jobless claims report released on Thursday contained more grim news for the economy. Last week, 6.6 million Americans filed for unemployment benefits, bringing the number of applications for the past three weeks to more than 16 million, a stunning sign of the damage inflicted by the virus.
Former Federal Reserve Chairwoman Janet Yellen, one of the nation's top economists, said the unemployment rate is now at least 13 percent. Yellen said she expects a 30 percent contraction of GDP this year, but has seen models as high as 50 percent.
The U.S. has the highest number of confirmed cases of COVID-19, the respiratory illness caused by the novel coronavirus, with more than 363,851 people infected, according to Johns Hopkins University data. More than 15,700 people in the country have died from the virus.