The $1.9 trillion coronavirus relief spending package signed into law by President Joe Biden will likely boost economic growth and could push inflation higher, though experts say full recovery waits on the U.S. moving past the pandemic.
"The most important component is to get Americans back working. And to get them back working, you have to take care of COVID," Rohan Williamson, a Georgetown University professor of finance, said in an interview.
Biden signed the bill on March 11, a day after the U.S. House of Representatives approved the Senate's revisions. The final step in passing the bill will help avert the expiration of expanded unemployment benefits later in March and came less than two weeks after the House first approved the legislation.
"This historic legislation is about rebuilding the backbone of this country and giving people in this nation — working people, middle-class folks, people who built the country — a fighting chance," Biden said during a brief statement at the White House.
The American Rescue Plan expands the Paycheck Protection Program for small businesses and includes billions for expanded vaccinations and testing, aid to local governments and schools, and new direct payments to taxpayers.
The bill also offers help to those struggling to pay utility, mortgage and broadband bills, in addition to expanding subsidies for health insurance exchanges. The massive spending plan builds on the more than $3 trillion in stimulus passed through the Coronavirus Aid, Relief and Economic Security Act in March 2020 and the second package in late December.
The new package comes as the health and economic crisis lingers. As of March 10, the U.S. had reported 29.1 million coronavirus cases and 527,705 deaths, according to Johns Hopkins University. The Labor Department estimated more than 18 million people were receiving benefits for the week ending Feb. 13, a jump from 2.1 million a year ago. Some 10 million people remained unemployed in February, despite the economy adding 379,000 jobs during the month, significantly more than most economists forecast.
A shot in the arm for healthcare, insurance
The bill would provide $46 billion in funding for the Department of Health and Human Services to use for COVID-19 testing, contact tracing and mitigation initiatives. The department also would get $1.75 billion for genomic sequencing, analytics, and disease surveillance, funding that could benefit sequencing machine makers such as Illumina Inc., as well as $7.6 billion in grants for community health centers to spend on vaccination and testing supplies. Companies authorized to sell COVID-19 tests include PerkinElmer Inc., Becton Dickinson and Co. and Abbott Laboratories.
The U.S. Centers for Disease Control and Prevention would receive $8.5 billion for vaccine-related activities, while the Food and Drug Administration would get $500 million to support regulatory reviews of vaccines, therapeutics and diagnostics. The bill also provides $5.2 billion to HHS to fund development, manufacturing and the purchase of vaccines, therapeutics and other pandemic-related medical supplies. Moderna Inc.'s COVID-19 vaccine was developed using government funds.
Hospitals received $100 billion from the CARES Act and $75 billion from the Paycheck Protection Act, but the American Hospital Association has said the latest bill needs to include more funding for vaccination efforts and the Provider Relief Fund. The organization is also advocating forgiveness for accelerated Medicare payments.
Skilled nursing facilities, which have been particularly hard hit by COVID-19, would receive $200 million to support infection control. The bill also includes $1.8 billion to detect, diagnose and reduce the spread of infections in settings such as prisons, long-term care facilities and psychiatric hospitals.
Another provision calls for a temporary expansion of subsidies for the Affordable Care Act insurance exchanges to those earning above 400% of the poverty level, and increased subsidies for those making between 100% and 400% of the poverty level, for two years. The change may make it possible for more people to purchase plans on the Affordable Care Act exchanges.
Boosting consumer spending
The $1,400 direct payments to taxpayers who earn less than $75,000 per year individually, or $150,000 for married couples, could boost online sales for companies such as Amazon.com Inc., Walmart Inc. and Best Buy Co. Inc. Total e-commerce sales in 2020 reached an estimated $791.7 billion, up 32.4% year over year, with growth fueled in part by earlier stimulus checks sent to U.S. households, retail analysts said.
Many consumers spent prior stimulus checks on big-ticket items such as new cars, meaning another round of checks could fuel a smaller boost in online spending as purchases go toward less expensive items, said Nick Shields, a senior analyst with Third Bridge who covers the retail sector.
Retailers like Lowe's Cos. Inc. and DICK'S Sporting Goods Inc. also stand to benefit from purchases of outdoor items such as grills and patio furniture as well as golf and fishing equipment, Shields said.
For banks, the relief bill is expected to support credit quality, much like prior fiscal injections have helped customers stay afloat and largely avoid defaults on loans. The prospect of a fresh round of federal support to bank customers has already helped drive down provisions for credit losses to their lowest levels in years.
The bill provides an extra $7.25 billion to the Paycheck Protection Program and expands eligibility to nonprofit organizations and online-only news publishers, both subject to certain conditions.
Keeping the lights on, bills paid
The legislation includes an additional $4.5 billion for the Low Income Home Energy Assistance Program, known as LIHEAP, which provides money for utility bills, weatherization and minor energy-related home repairs.
But the LIHEAP funds will help only a portion of Americans currently protected by utility shutoff moratoriums. About 185.8 million people — or 57% of the U.S. population — were projected to have been covered by either COVID-19-related or seasonal utility shutoff moratoriums by the end of February, according to the National Energy Assistance Directors' Association.
In late January, NEADA had asked congressional leaders for an additional $10 billion for LIHEAP, more than twice what is included in the current COVID-19 legislation.
"The additional funds [in the latest COVID-19 bill] will give the states the flexibility to address outstanding arrearages as moratoriums begin to expire this month," NEADA executive director Mark Wolfe said. "We are concerned that the amount might not be sufficient to cover outstanding debt especially in the hard-hit states, but it is a step in the right direction."
The legislation also contained $19 billion for emergency rental assistance, part of which could cover home energy costs and past-due utility payments. An additional $5 billion would boost funding for Section 8 rental assistance vouchers, with the same amount aimed at preventing homelessness, including through housing counseling and rental assistance. Separately, in February, the Biden administration said it would extend foreclosure moratoriums for federally guaranteed mortgages through June.
The bill also includes a $10 billion homeowners assistance fund for expenses like mortgage payments, homeowners insurance and other bills, including broadband and utilities. The government's previous effort to help Americans with broadband bills, the $3.2 billion emergency broadband fund created in the Consolidated Appropriations Act 2021, is just beginning to take shape after the Federal Communications Commission voted to establish the program on Feb. 25. The new program will reimburse broadband providers that offer eligible households a discount on broadband service and certain connected devices during the pandemic.
A temporary measure
Key questions remain about the possible second-round effects of the stimulus bill, with expectations that the economy will fully recover only when it emerges from pandemic restrictions.
The Federal Reserve Bank of Atlanta on March 8 estimated real GDP will grow 8.4% in the first quarter. Adding the new stimulus package is likely to push economic growth close to record levels in 2021, said Tom Essaye, president of Sevens Report Research, in an interview. And the Federal Reserve could rein in inflation with higher interest rates, Essaye said.
"What makes me nervous is [the Fed] may just say, 'We're thinking about changing the policy,' and that in and of itself could cause a pullback, or an increase in volatility, in asset prices because the market is so aggressive right now," Essaye said.
Given that inflation has been low for so long, the prospect of rising inflation could be a good thing for the economy, Calvin Schnure, Nareit's senior vice president of research & economic analysis, said in an interview. Federal Reserve Chairman Jerome Powell has said he is comfortable with allowing inflation to run ahead of the 2% target for a sustained period.
"That still gives them a long time to adjust policy before we have a dangerous inflation [situation]," Schnure said.