The federal government’s flagship relief program for small businesses ran out of funding on Thursday, as discussions between Steve Mnuchin and Democrats over the specifics of topping up the so-called Paycheck Protection Program continued.
The $349 billion program was exhausted within just two weeks, forcing the Small Business Administration to post a message notifying would-be recipients that applications aren’t being accepted “based on available appropriations funding’.
“America’s small businesses are on the brink, trying desperately to keep their doors open and support their employees”, Brad Close, president of the National Federation of Independent Business, lamented. “They have been let down by lawmakers and the bureaucracy, with the smallest businesses most disadvantaged”.
To be sure, congressional leaders and the administration were fully aware that the program would run dry this week, and have spent the last several days blaming each other for the delay.
To briefly recap, Steve Mnuchin asked Congress to top up the PPP by $250 billion. Mitch McConnell agreed, but in addition to the extra money for small businesses, Democrats want $100 billion for hospitals and $150 billion for local governments. For his part, Donald Trump maintains he’d rather allocate those funds later, as part of the next stimulus bill.
With many lawmakers out of town, approval of additional funding for the PPP needs unanimous support in both chambers. “Of the more than 1 million applications that SBA had processed as of Monday, construction firms had a larger share of loans approved than other industries so far, followed by professional, scientific and technical service companies, manufacturers and health care and social assistance firms”, Bloomberg wrote Thursday, documenting where the funds have been allocated so far. “The average loan amount for all applications approved was $239,152“.
Mnuchin found himself on the receiving end of all manner of social media derision Thursday after describing $1,200 direct payments to US citizens as “bridge liquidity for people as they go through these difficult times”.
Asked by Margaret Brennan to estimate how long Americans were expected to survive on this “bridge liquidity”, Mnuchin said that “overall”, the economic package put together by Congress and Treasury should help Americans through “about 10 weeks”.
Clearly, Mnuchin did not mean to suggest that Americans can survive on what, if you do some very crude math, sums to $6,240 per year.
But in times like these, there’s no room for gaffes – especially when you’re worth $300 million, like Mnuchin.
Although those steeped in the news or otherwise apprised of the timeline knew it was possible the SBA’s lending program would run dry on jobless claims day, it’s safe to say most Americans weren’t aware, so the optics were particularly bad.
That is, gridlock inside the Beltway temporarily shut down the rescue program for small businesses on the same day that government data showed another 5.25 million Americans filed for unemployment benefits, taking the four-week total to more than 22 million.
As noted Thursday morning, that means that a decade of job creation has just disappeared into thin air.
Going by the official start date from the NBER, and assuming the recession began in Q1 of 2020 (i.e., taking December’s non-farm payrolls report as the last data point), the US created around 20.5 million jobs over the longest expansion in history. The last four weeks of COVID-19-related jobless claims have effectively wiped those gains off the board – and then some.
On Wednesday, Atlanta Fed boss Raphael Bostic warned that “May is going to loom as a large month, in terms of the transition of concern from this being a liquidity issue… to this perhaps translating and transferring into a solvency issue, and whether companies can exist at all”.
Hourly employees working at local businesses plunged as much as 75% through Sunday, with hours worked falling as much as 68%. The granular data, from Homebase, compares a given day to the median for that day of the week for the period January 4 to January 31. The picture is disconcerting, to say the least.
“Hourly workers [have seen] hours, shifts, and operations come to a full stop”, Homebase founder and CEO John Waldmann warned late last month, barely a week into the shutdowns.
“In the first week of forced closures and shelter-in-place orders, we saw as much as a 62% decline in the number of hours employees at small businesses were working”, he said.
Commenting in a new note on Thursday, JPMorgan’s Marko Kolanovic summed things up using a simple analogy.
“The economy is in an ‘induced coma,’ and fiscal and monetary authorities committed to provide a sufficient amount of ‘oxygen’ until the economy can be reawakened from this state”, he wrote.
Some of that oxygen supply ran out on Thursday, although fortunately, it will almost surely be replenished, unless both Democrats and Republicans plan on committing political suicide over funding everyone agrees is both necessary and desirable.
“If this operation is successful, the fact that many corporate earnings or economic readings will be zero during this ‘induced coma’ is less relevant”, Kolanovic went on to write, before cautioning that “the risk is if this ‘induced coma’ lasts too long, or the amount of ‘oxygen’ is insufficient, some parts of the economy will suffer irreparable damage”.