06/12/2020

CBO Says COVID-19 Will Haunt U.S. Economy for Years

The pandemic already has shrunk the U.S. economy by roughly $4 trillion

The COVID-19 (coronavirus) pandemic has shrunk the U.S. economy by roughly $4 trillion already, according to recent projections by the Congressional Budget Office (CBO).

In a letter to House Speaker Nancy Pelosi (D-CA), the CBO said a $2.7 trillion downgrade to projections of consumer spending accounted for about two-thirds of the decline. Consumer spending is the largest single component of gross domestic product (GDP). The next largest component to the change in projected GDP came from a decline in private investment, accounting for $1.3 trillion of the total. That projection arises mainly from a lower forecast of demand for the goods and services that businesses produce.

CBO said the four COVID-19 relief laws Congress has passed to directly assist households, businesses and state and local governments added $2.2 trillion to the federal deficit in fiscal year 2020 but will help mitigate the economic decline in the short term.

In particular, “the payments and tax credits issued to individuals will boost the overall demand for goods and services by providing resources when many households are experiencing a significant loss in income,” CBO said. “Loans, grants and changes in business tax provisions will provide liquidity to businesses experiencing financial distress because of social distancing and the sudden drop in economic activity, increasing the likelihood they will survive and preserve jobs for their employees until activity picks back up.”

Pelosi noted an improved jobs report for May as another benefit of congressional relief efforts but said more legislation is needed. The House passed the $3 trillion HEROES Act last month to pump additional pandemic-related assistance into the economy but the Senate will not take up the legislation and is waiting on a next relief measure until after the July 4^th recess.

“The GOP Senate must pass the HEROES Act or else this fragile progress will collapse and the tens of millions of Americans still desperate for help will fall deeper into despair,” Pelosi said. “The president must join us to support real action to protect lives and livelihoods, rather than hide behind these jobs numbers and pretend that the job is done.”

This article was provided to OSAE by the Power of A and ASAE's Inroads.