Bonus jobless benefits could likely decrease to $400: Expert

Pangaea Policy Founder Terry Haines joins Yahoo Finance’s Zack Guzman to discuss the outlook for the next coronavirus relief package, as the White House and Democrats aim to reach a deal by the end of the week.

Video Transcript

ZACK GUZMAN: Employers trying to get back to business, perhaps rehiring here. And we got the latest update in terms of America's employment picture this morning with private payrolls coming in from ADP, and the numbers there missing the mark. Got the update. 167,000 jobs added in terms of private payrolls last month. That fell short of expectations. Estimates in a Bloomberg survey had economists expecting projections of 1.2 million private payrolls added, so clearly a big mess there.

However, June was revised upwards to 4.31 million, but just kind of it goes to show how quickly the momentum here has fallen off. Compare 4.31 in June to 167,000 in July.

Of course, we're also going to get that update on Friday. The government jobs report forecasted to show payrolls increasing 1.5 million in July. Again, a pretty noted tick down from June after we got that 4.8 million surprise back then. Worth noting that the ADP numbers and BLS statistics don't always match up, but obviously not entire optimism being formed here ahead of Friday's report. JPMorgan saying it reinforces their view that the economy has lost momentum in recent weeks following a period of strong growth.

So, all that being said, it makes the current discussions in Washington, DC, much more impactful. And for more on where Republicans and Democrats are at in terms of that next wave of stimulus, including what seems to be agreed upon $1,200 stimulus checks for Americans who qualify, what more could be added on top of that? Here to discuss is Terry Haines Pangea Policy Founder. And, Terry, it's good to see you again.

Right now, it sounds like we are going to get our third straight meeting between top Democrats and Republicans here to discuss what could come. Worth keeping in mind, though, I mean, when we think about how far apart these sides are, that $3 trillion price tag in the HEROES Act Democrats opened with. Senate Majority Leader Mitch McConnell, we've heard him trying to stick to a $1 trillion price tag. Where do you think they'll wind up meeting in the middle on this one?

TERRY HAINES: I think that where they end up is probably somewhere between a trillion and a half and a trillion and 3/4. It wouldn't surprise me greatly to see that go up to as much as $2 trillion. But Republicans have been trying to-- their opening bid was to try to keep the numbers down as much as possible while the Democrats in the House did what the House always does, regardless of which party's in the majority. You overreach. You set your bar as high as you can knowing you're going to have to walk back when you're negotiating with the Senate and the White House, and I think that's what they're doing.

But there seems to be a policy, political, and economic consensus that a trillion and a half is what's needed in order to have a good, meaningful phase four, and you can probably expect Washington being Washington to plus it up a little bit. But that's where the number is right now.

ZACK GUZMAN: Yeah, well, one of those key components here when we talk about what concessions might be made is that unemployment-insurance benefit. We saw that roll off at the end of July, that extra $600 that unemployed Americans would be getting from the federal level. That had, in some cases, more than just replaced the money that they had been making. Normally the average in the US, unemployed workers generally would get about $300 a week. Obviously those benefits on top made it easier for Americans to pay bills since $300 a week I don't need to tell you probably won't be able to fill all the bills.

But an interesting study from economists cited by the "Wall Street Journal" was pointing out that if you don't replace that extra benefit, you could see aggregate spending fall 4.3% in one month. That would be greater than the decline that we saw back during the Great Recession. So what's your take on why this is so important to see that replaced and why we can't really, if you think about the pain being felt by Americans out there, can't wait much longer than if we don't get a deal by the end of the week?

TERRY HAINES: Well, firstly, I think the reason why the negotiations seem to be speeding up a little bit-- I think that's the case-- is that neither party wants to be politically responsible for having UI benefits, you know, go into hold. They could backfill that, of course, but, you know, even that temporary glitch is not something either party wants to do, so they're trying to get something done, ideally this week, although I think it takes a little bit longer.

Secondly, you know, there's the usual difference of opinion between the economists sitting in ivory towers and people out on the street. And if you talk to a lot of small-business people, as a practical effect, as a practical matter, you know, they're having a hard time getting people with a $600 a week unemployment. So they'd really like to-- what both parties will probably end up doing is doing a little less, probably $400 to $500, extending it more.

There have been discussions about possibly stair stepping it down over time when the unemployment rate goes down. That's a really good idea in theory, but in practice it seems very difficult to implement. So that might-- that might fall by the wayside in the end. But what they're balancing here is trying to get money out for a long period of time, paying a little bit of attention to the overall debt, and at the same time, incenting people to get back to work and go to work and stay at work.

ZACK GUZMAN: Yeah, what's interesting is that same study-- the "Wall Street Journal" study there would tie about a $400-- you said it. Drop it from $600 a week back down to $400. It's still going to correspond with a 1.4% spending decline there. So either way, I mean, obviously investors think in the interim, the margin, that would be the direction we'd be heading.

But you talk about other things here as well. And even on that front I should note that, you know, you've got some Republicans that aren't necessarily opposed to extending those benefits, Mitt Romney being one of them. But beyond that issue, you've also got the question of spending and supporting states and cities here. We've heard some very interesting proposals coming from Chairman Crapo as well here on this front to kind of shift around, maybe shift that responsibility back to the Fed to support these states. But across the board, whether you talk to Republicans or Democrats, it's very clear that there is going to be a budget shortfall here, and we do not want to repeat the same mistake that we saw in 2008 and '09 when you think about states cutting back when the federal government is trying to stimulate the economy.

TERRY HAINES: Well, I think the-- you've rolled that out very well, firstly. Secondly, I think that what ends up happening here is I never thought Republicans were against giving money to state and local governments. I think what they are against is trying to bail out cities that have been teetering on the edge of bankruptcy due to profligacy like Chicago, for example.

And so I think what they're trying to do is trying to get the money there and target it, firstly. Secondly, you mentioned Banking Chairman Crapo who rolled out a very interesting idea last night to let the Fed, through 13(3) emergency authority, allow state and local governments actually to borrow money directly from the Fed.

And, you know, that indicates a couple of things. One is that Republicans are trying to come up with creative ways to allow cities and states to access borrowing authority. And secondly, it shows you that Republicans aren't opposed to getting money out there to help what needs to be helped. So, you know, both sides here are moving towards accommodation and agreement.

ZACK GUZMAN: Yeah, and whether it comes through the Fed or other agreements there, I mean, we've seen the job losses stack up, more than 1.5 million across state and local governments in terms of scaling back and letting some of those workers go.

But also want to follow up on an interesting update between the US and China. We've seen tensions mounting there. The latest chapter, a very interesting one in regards to TikTok and what might be done if Microsoft or other big tech company is being pushed to come in here and scoop up the US business of ByteDance, TikTok.

But when we think about relations overall, it looks like both sides are going to be reviewing their phase-one trade deal. Mid-August, we're going to see Chinese Vice Premier Liu He and Trade Representative Robert Lighthizer coming together around August 15 to talk about what's happened with that phase-one deal and whether or not both sides have been sticking to it. I don't think it would be a stretch to say so far China has not necessarily held up 100% their side of the bargain. So what's your take on what that meeting might signal for US-China tensions and what we should expect from it?

TERRY HAINES: I think that markets should understand that it's a good thing, that it's market positive. Meetings of all kinds were built into the phase-one agreement. So it doesn't surprise me greatly-- including lower-level meetings happening with some frequency. So it doesn't surprise me greatly that there would be a high-level meeting in this case between Vice Premier Liu He and USTR Lighthizer, and I think that's a good thing.

It signals that the US and China are considering, firstly, that the agreement is serious. Secondly, despite disappointments on both sides, whether it be the US disappointment with the amount and level of purchases, as you say, or China's vexation with other things that the United States has been doing-- sanctions relating to the plight of the Uyghurs to Hong Kong, actions around the South China Sea, TikTok, Huawei, and others-- that both sides' interests remain solidly focused on trying to make this agreement work as much as it possibly can.

I don't think either side is going to be interested in walking away from it anytime soon, and so markets should take this meeting as a signal of that more than anything else.

ZACK GUZMAN: Yeah, and China's ByteDance has come out and said I wouldn't put too much faith in that 45-day timeline that President Trump's pushing for here.

But all this very interesting to see play out considering a lot of the concerns when we started this whole US-China trade deal were around forced technology transfers and US companies having to give up their code to operate in China, and now we're seeing national-security concerns spark a deal here for a big tech firm to take over a Chinese company. But I'll leave that there.

Terry Haines, Pangea Policy founder, always appreciate getting your thoughts. Thanks again for joining us.

TERRY HAINES: Thanks very much, Zack.