'The underpinnings of the American economy are getting weaker and weaker': Fmr. OMB Chief Economist

Joseph Minarik, The Conference Board Chief Policy Economist & Former OMB Chief Economist, joins Yahoo Finance's Zack Guzman to break down the latest out of Jerome Powell and Steven Mnuchin’s testimony on Capitol Hill.

Video Transcript

ZACK GUZMAN: Want to continue the conversation here on what we just heard, though, from both of those men here in front of the House Committee. On all of this, because it was wide ranging, and to continue the discussion, want to bring on our next guest here, Joseph Minarik, he's The Conference Board Chief Policy Economist and Former OMB Chief Economist as well. And Mr. Minarik, I mean, just to jump off of what we were talking about there with Brian, I just want to play this one piece and what we heard from Fed Chair Powell discussing the reason why he hadn't seen so many companies here, as Brian's talking about, only about 0.33% the uptake there on the Fed Main Street Lending Program. Here's what he had to say about that.

JEROME POWELL: Many borrowers will benefit from these programs, as well the overall economy. But for others, a loan that could be difficult to repay might not be the answer, and in these cases, direct fiscal support may be needed.

ZACK GUZMAN: So what's your take on that? Because we've heard this push to kind of, you know, both sides, Republicans and Democrats really applauding the Paycheck Protection Program for doing what it was intended to do, which is support small businesses, keep people on the payroll. What do you make of maybe how the Main Street Lending Program is kind of both sides' favorite punching bag here and maybe why it's getting so much attention as one example of why we can be doing more?

JOSEPH MINARIK: Chairman Powell has been saying for some time, and he was saying there again, that for many smaller businesses, a loan is not necessarily going to be helpful. When you're looking at firms that are not strongly capitalized, do not have a lot of built-in equity, do not have reserves that they can draw down to cover their expenses and to keep themselves open, having a loan that they then have to repay out of what was going to be essentially hand-to-mouth existence in the future is not going to solve their problem. The concept of the Paycheck Protection Program was helpful, because for many of those kinds of businesses, those businesses that don't have cash reserves, the ability to get a forgivable loan if they stay open, if they keep people employed was sound and did give them the prospect of staying in business. The notion that you have businesses that have been weak over the last few months and now have simply had to shut their doors, that's a real problem, and it is not necessarily going to be solved with a loan.

ZACK GUZMAN: Yeah, and that's why we, I mean, we talk about why programs like PPP and why additional rounds of stimulus are so important here, but as we continue to await those, not a lot of optimism. And I know that you're experienced in kind of dealing with politics and the way that it plays out logistically here. But I mean, the closer we get to the election, a lot of investors here, market watchers noting that the odds do not increase, especially if you throw into the mix a heated Supreme Court nomination, as well. I mean, with all that dragging on, what's your take on what's happening with the underlying economy here? And what could be-- I mean, I know that we talk about these being two separate things, with the stock market and the underlying economy, but the stock where it could be signaling some risk there.

JOSEPH MINARIK: There's no question that we're dealing with considerable weakness here. You hear the stories about a K-shaped recovery that, you know, some segments of the population are not doing well. It is very much bifurcated according to people's human capital, their ability to work with skills rather than with their hands and physical presence.

So you've got businesses that are able to function with relatively high paid employees, and they work remotely. They can continue to spend. The folks who used to clean their offices and used to serve them lunch are no longer needed, and as a result, you have a lot of people who previously had relatively low incomes, weren't spending an awful lot, but they are hurting badly. And at some point, you find quite likely that the underpinnings of the overall economy are getting weaker and weaker.

So the Congress and the President ought to get together and find a way to provide some additional support until we get this pandemic licked. But at this point, you know, there's the joke about walking and chewing gum at the same time. Washington very often has demonstrated that it can't. And if we're going to fight over a Supreme Court nomination, it's quite possible that those folks are simply not going to have the bandwidth to deal with the pandemic economy, and it's a shame, and it's painful, but it's a reality.

ZACK GUZMAN: Well, yeah, and I mean, when we're talking about that pain being felt by some more than others, I mean, that's an important distinction here. Because we did get that data yesterday from the Federal Reserve noting that US households' net worth jumped nearly 7% in the last quarter to $119 trillion. That had sunk to about 111 trillion in the first quarter when we saw the stock market take a hit. And in that recovery, it's helped those household levels recover. Of course, that's not being felt by everyone equally, though, and that's an important statistic when we think about the inequality. To your point, maybe those wealthier Americans out there that might have the service workers serving them on hand and foot, as you're describing here.

But data from Opportunity Insights just kind of puts a number to that showing the highest paying one third of jobs have almost completely recovered during the recession while the lowest paying one third of jobs remain about 16% below their pre-pandemic levels. And you heard from Chair Powell discussing their economic forecasts here, noting that all of the 17 FOMC members did not necessarily assume they would get that phase four relief package here when they were factoring in, you know, what the unemployment rate might look like at year end. They didn't necessarily put that in there, and at least not all of them didn't assume that happening. So I mean, when you think about year end unemployment and what some people are projecting about 8% or 9% by the end of the year, I mean, if you don't get that next round of stimulus and you're talking about the pain being felt by Americans, what does it look like in your eyes when we get there?

JOSEPH MINARIK: I think the 8% or 9% unemployment, in other words, unemployment essentially being flat is a reasonable outlook for what the economy is going to be. We've recovered, if you will, the low hanging fruit. Folks who lost jobs, who had pretty well-paying jobs, have established themselves working remotely, those kinds of developments have been achieved, but we're at the point now where the share of the workforce that is out is mostly those who need to work in-person and either are not needed because the demand isn't there with working on site from higher wage workers or simply can't do it because of restrictions because of public health, and that is going to be a drag on the economy going forward. It's going to hurt a number of sectors that are, in fact, dependent upon the breadth of consumption that we normally see in a fully employed economy.

ZACK GUZMAN: Absolutely, and we'll continue to track all of that, but appreciate you joining us to give us your insights. Joseph Minarik, The Conference Board Chief Policy Economist, thanks again for taking the time.