As the U.S. presidential election approaches and the conclusions of the negotiations on a new stimulus package remain elusive, what appears to be the historic GDP growth rate in the data released on Thursday is unlikely to have much impact on an agreement.
A number of forecasters expect the figures to show the biggest economic upturn since World War II, with growth between 30 and 35 percent, which will regain much – though not all – of the ground lost by the pandemic.
Nevertheless, economic talks have been almost at a standstill for months because the partisans have not agreed on how big they should be and what provisions they should contain. Despite recent signs of progress, no agreement has been reached.
“It really is the political situation that will determine whether and how big the next stimulus package will be,” Eric Winograd, senior vice president and senior fixed income economist at AllianceBernstein, told Tekk.tv.
“This is a political calculation they are making, not an economic one.”
The Democrats are pushing for a $2.2 trillion escalating stimulus package, less than the $3 trillion they originally wanted to do to address the scale of the crisis they believe Americans are facing.
But the Republicans want fewer, targeted incentives – a so-called “thin bill” – of around $500 billion and accuse the Democrats of having a biased spending wish list. President Donald Trump and the White House are trying to bridge this gap between the two parties.
Faced with another fruitless round of negotiations, Trump told reporters on Tuesday that the next coronavirus stimulus package would come after the November elections.
The U.S. Senate was adjourned on Monday after the swearing in of the new U.S. Supreme Court Justice Amy Coney Barrett, and is not expected to reconvene until after election day.
Legislators may be asked to return to Washington, D.C., to vote on a new bill if agreement is reached. Amidst the political quagmire, experts are skeptical about the impact of a good GDP reading.
“There is growing optimism that goes into this report, but I think you will see that it will still signal that the recovery is still not quite back to the level it was in before the pandemic,” Edward Moya, senior market analyst at Oanda, told Tekk.tv.
“I think what we will see is that the outlook has worsened dramatically, especially in October.
“Any GDP surprises will have a limited impact on the calls for stimulus. I think that the path of a new package will probably still be determined by the elections, so no matter what happens, there will not be a strong reaction to this release.
Winograd said that the recovery of GDP so far “is partly due to the stimulus packages that were passed in the spring and which I believe have been very effective”.
He continued: “I still believe that more incentives are needed because GDP has not yet fully recovered and because there are still more than 10 million unemployed people who worked before COVID,” Winograd continued.
Peter Atwater, lecturer in the economic department of William & Mary, also believes that the probability of passing a law depends more on politics than on the state of economic data.
“The unique nature of the [GDP] figure will make it easy for policy makers on both sides to dismiss it,” Atwater told Tekk.tv.
“Unfortunately, as long as policy makers do not believe their own political careers are at risk, little will be done to help those whose lives have been turned upside down by the pandemic.
Regarding the possible market reaction, Moya believes that investors are still focused on how another wave of COVID-19 infections could disrupt the outlook as global equities move lower today on news of increased cases.
“There is a growing expectation that the winter months will paralyze the economy and consumer spending, so despite the fact that this GDP reading appears to be positive, the market is anticipating this,” Moya said.