Is the economy running fast or slow? It depends where you look.

Robert F. Bukaty/AP
A woman wears a mask to protect against the spread of the coronavirus while looking at drying racks outside a hardware store in Sanford, Maine, on Sept. 9, 2020. While parts of the economy have recovered from the initial pandemic slowdown this spring, other small businesses such as restaurants remain struggling.
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One reason Congress is struggling with passing a new coronavirus relief bill is that economic recovery is operating at two speeds: forward and a sputtering neutral. 

In places like Montpelier, Vermont, companies like TimberHomes Vermont are booming, with demand surging for everything from its trailhead kiosks to timber-framed cabins. But down the road, businesses that aren’t so geared for this era of social distancing are struggling, including a massage parlor and an art-house cinema that shows independent films. 

Why We Wrote This

The U.S. economy really has made a lot of progress since the pandemic caused a spring nosedive. But it's also far from recovered, leaving a sharp divide between booming and struggling sectors.

So when Congress tries to craft a relief package, it has to consider which picture to look at. For those focused on signs of recovery, a Republican Senate proposal that failed to advance Thursday might have looked just fine: extra unemployment benefits at $300 per week, half the level of the previous round of relief, and added funding for a small-business loan program. 

For those focused on the ongoing deep downturn in certain sectors, the Democrats’ much larger relief package might appear more appropriate. Could the economy recover without any stimulus? That’s a risky premise, according to economists. Says Daniel Zhao at job site Glassdoor: “We don’t want to see the recovery lag when we’re still so deep in the hole.”

Business is booming at TimberHomes Vermont outside Montpelier. Demand for its timber-framed structures – from trailhead kiosks to rustic cabins – is high. In the past two weeks, the company has hired three new workers and is in the process of adding another two to keep up with the surge in demand, boosting the workforce by a quarter.

“We’re definitely firing on all pistons,” says Timo Bradley, one of six member-owners of the company.

But heading into Montpelier, less than a mile down the road, Massage Vermont is temporarily closed while its co-owners try to operate virtual healing sessions using breathing techniques. And in the state capital itself, the Savoy Theater, an art-house cinema showing independent films, is now open only for weekends. On its home page is a link to a national campaign. The message reads: “Tell Congress to #SaveYourCinema.”

Why We Wrote This

The U.S. economy really has made a lot of progress since the pandemic caused a spring nosedive. But it's also far from recovered, leaving a sharp divide between booming and struggling sectors.

Will Congress hear? And if so, which company will it listen to?

In Vermont and across the United States, economic recovery is taking place at two speeds. Some companies are moving, even rocketing, ahead. Others seem stuck in neutral, waiting for pandemic rules to ease or demand to pick back up. And for Congress, faltering in its bid to pass a new coronavirus relief bill, the proper size and scope of the package may hinge on these mixed signals as well as on an ideological divide over economic policies. 

If one looks for signs of recovery, there’s plenty of evidence for it. E-commerce, home-related industries, and goods-producing companies are seeing demand snap back smartly after a dismal spring. 

“For the moment, it looks like households have been able to sustain spending pretty well,” despite the expiration of $600-per-week extra federal benefits to the unemployed, says Jonathan Millar, senior U.S. economist at Barclays Research in New York. 

Thus, the economy might benefit from a small stimulus bill, such as the GOP’s so-called “skinny” rescue package, which failed to advance in the Senate on Thursday.

For those focused on struggling businesses, the House Democrats’ $3 trillion package looks far more appealing. It would provide checks to individuals and offer a cushion of federal aid to companies and state and local governments, buying them more time to recover from the effects of lockdowns and squeezed revenues. 

“We don’t want to see the recovery lag when we’re still so deep in the hole,” says Daniel Zhao, senior economist at Glassdoor, an online job and recruiting site. “It just extends the length of the recovery” toward pre-pandemic employment levels. “And the longer the recovery, the greater the risk that temporary reductions turn into permanent losses.”

Michael Conroy/AP
A help wanted sign is displayed at a Home Depot store in Indianapolis on Sept. 2, 2020. The U.S. unemployment rate has fallen since the spring, but remains severely elevated at 8.4%. Republicans and Democrats in Congress remain far apart on how much additional economic aid the government should provide.

The big question for Congress now is whether the pace of recovery is sustainable without further federal help. And here the evidence is mixed. Not only has consumer demand held up, but corporate earnings have snapped back since the spring, sometimes with surprising speed. 

Whether due to those relatively positive signals or clashing partisan positions, it appears to have grown more difficult for members of Congress to reach a compromise – despite the economy’s parallel signs of severe stress.

“Unfortunately, what has happened is that they’ve taken their foot off the gas because momentum has waned for the urgency of the moment,” says Caroline Bruckner, an American University tax expert who researches women-owned businesses. But “that’s not what I see in my neighborhood. It’s not what I hear when I talk to ... business owners.” 

Within a short walk from her home, she counts at least seven restaurants that have closed permanently since the spring. 

“In every crisis, you’re going to have a population that thrives, right?” Professor Bruckner adds. “But that’s not everybody. And, you know, the data is pretty clear that self-employed workers – who are the smallest of small business owners – are suffering pretty intensely.”

One potential reason that consumer spending looks OK is that the previous round of federal stimulus checks built up a reserve of savings that consumers can now draw on, says Mr. Millar of Barclays Research. A study for the National Bureau of Economic Research found that through early July the recipients of those payments had spent only about 40% of the money. The rest either went to pay off debt or was stashed away in savings accounts.

“It’s not too surprising that it’s 40%,” says Michael Weber, a finance professor at the University of Chicago business school and a co-author of the study. Stimulus checks in previous downturns generated only a slightly higher rate of spending.

The danger is that that saved stimulus will run out and that demand will taper off, economists warn.

If the goal is to stimulate demand, there are more efficient ways to do it, Dr. Weber adds. His study found that low-income families, people out of the labor force, and larger households with children were more apt to spend their stimulus payments than other groups.

The GOP proposal didn’t include new stimulus checks, and instead would have restarted the extra federal payments to the unemployed at $300 per week. For businesses, the bill offered includes liability protection for COVID-19 and a new round of funding for the Paycheck Protection Program (PPP), which offered loans to small businesses and forgave the debt if firms held on to their employees. The House bill included general stimulus checks, extra unemployment benefits at the previous $600 per week rate, an extension of the PPP, and more.

Other stimulus targets might also provide more bang for the buck, the NBER study suggests, such as direct government purchases of goods and services and aid to cash-strapped local and state governments to help prevent them from cutting the services they provide. The latter provision was a feature of the Democratic measure, not the Republican one.

All this suggests that, should the recovery falter or Wall Street plunge to new depths, pressure on Congress to do something will ratchet up and the prospects of a bipartisan compromise would brighten.

But speed is important, analysts say. “Better to have something small now than waiting another four or six weeks,” says Dr. Weber.

Editor’s note: As a public service, all our coronavirus coverage is free. No paywall.

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