July 6, 2020
COVID-19 is not going away anytime soon. As our economy continues to open, the number of new coronavirus cases continues to increase. While we have not had a surge in new cases as of this writing in our area; Texas, Arizona, Florida, and numerous other states have.
As we reported earlier today, President Trump signed legislation on July 4 extending the Payroll Protection Program (PPP) for five weeks until August 8. The program had expired with roughly $130 billion in funding still available. The extension comes as the House and the Senate prepare for negotiations over the next round of coronavirus stimulus.
Unemployment
Another program established by the CARES Act gives unemployed workers an additional $600 in benefits is set to expire on July 31. Unemployment benefits will revert to their normal payment amount, which
varies by state
. Although it is not expected that this benefit will be extended, no one expected extra time for the PPP.
The good news is that companies are bringing their employees back to work. Employers brought 4.8 million people back to work last month bringing the unemployment rate down to 11.1%. The bad news is that 1.4 million people filed for unemployment last week.
The job gains in June "reflect a partial resumption of economic activity that had been curtailed due to the coronavirus pandemic in April and March, when employment fell by a total of 22.2 million in the two months combined," the Bureau of Labor Statistics (BLS) said in a press release.
Seth Harris, the former acting secretary of labor in the Obama administration, told ABC News the June jobs report does not yet take into account the decision by states to pause their
reopening plans
. As of July 3, more than 20 states have either paused openings or put some restrictions back in place.
"The important thing to remember is that the monthly jobs report numbers, are from several weeks ago so they do not capture the closings that are happening in California, Arizona, Texas, Florida and other states," he said. "They also don’t capture the fact that there are continuing layoffs."
A data feed for HomeBase, a tech company that administers timecards for more than 100,000 small businesses, concluded that fewer employees worked in the final week of June than the previous three weeks.
The economy has regained only about one-third of the 22 million jobs it lost to the pandemic recession, according to June’s jobs report. And the unemployment rate still exceeds the highest rate during the Great Recession.
According to the
Associated Press
, the number of people labeled “permanent job losers" surged by 588,000 last month. That was the biggest such jump since February 2009, in the depths of the Great Recession. These people will likely find it more difficult to regain employment.
Average Hourly Wages
Although employers did not impose pay cuts, the average hourly earnings at private companies fell 1.2% to $29.39 in June. For rank-and-file workers, hourly earnings dropped 0.9% to $24.74. Workers who were rehired in June at bars, restaurants, and other such establishments, disproportionately work in lower-paying occupations. That trend pulled down average wages for the month.
Cornell University’s law school found in its
Job-Quality Index (JB+QI)
that nearly 87% of June's growth in private sector hiring came from what they describe as “low quality’’ jobs. These are non-management positions that offer below-average weekly earnings.
“Job gains in June were broad-based across 75% of the private sector,’’ noted Kathy Bostjancic of Oxford Economics. Retailers added 740,000 jobs, health care 475,000, manufacturers 356,000, and construction firms 158,000.
PPP Loans Helped
According to a survey by the
National Federation of Independent Business
, PPP loans played an important role in reducing unemployment. PPP loans were taken by 81% of survey respondents. Even so, 14% anticipate having to lay off employees after the loan runs out. Nearly half of small business owners who applied for a PPP loan or an Economic Injury Disaster Loan (EIDL) anticipate needing additional financial support over the next 12 months.
More than 4.8 million small businesses took out $520 billion in PPP loans as of June 29, according to the Small Business Administration (SBA). In addition, the SBA has made 2 million EIDL loans totaling $127 billion through June 27.
Current Options
New Stimulus
Experts say negotiations between Republicans and Democrats on a new wave of stimulus will not start for another few weeks. It is unclear what any specific measures may be.
At least a dozen more bills would reform or expand the existing PPP or create new programs to help small businesses impacted by COVID-19. None have advanced in either chamber in recent weeks. The HEROES Act, an expansive small business rescue bill passed on May 16 by the House, was dead on arrival in the Senate for including several other programs.
Another measure pending in the Senate is the
Prioritized Paycheck Protection Program (P4) Act
. It was introduced on June 18 in the Senate by Senator Ben Cardin (D-Md.) ranking member of the Committee on Small Business & Entrepreneurship, as well as Senators Chris Coons (D-Del.) and Jeanne Shaheen (D-N.H.). P4 would allow businesses with fewer than 100 employees to apply for a second PPP loan if they have used up (or are on pace to exhaust) their first PPP loan and can show a 50% loss in revenue due to the COVID-19 pandemic. Business owners must also show that they need the money for payroll and eligible non-payroll costs.
It is not expected that the House or Senate will start negotiating a new stimulus package until mid-July.
There are other alternatives Congress and the IRS could consider, such as cuts in capital gains or forgiveness of federal taxes for businesses and individuals. It will be interesting to see what transpires before the end of the PPP on August 8.
Stay safe,
Rich Higgins, CPA
Managing Principal - New Jersey Office
McCarthy & Company
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).
