Credit Risk

Podcast: Unpacking the Fiscal Stimulus

Podcast: Unpacking the Fiscal Stimulus

January 25, 2021 | Theresa Freas

Who Benefits from the Fiscal Stimulus?

There were three main components to the fiscal stimulus package that Congress approved in late December. They included pandemic relief, such as vaccine distribution, testing and tracing, as well as financial support for households and small businesses, according to Cris deRitis, Deputy Chief Economist at Moody’s Analytics.

“The pandemic has to be dealt with first of all. But in addition to that $900 billion package at the end of December, we were facing a number of programs that were set to expire,” said deRitis. “So, that plan provided some household financial support with the one-time stimulus checks and expanded unemployment insurance. And then finally it provided some support for small businesses, which remain critical through the recovery as well. ”

In our January 21 Market Pulse episode, “Unpacking the Fiscal Stimulus,” deRitis and I discussed how lenders and service providers will benefit from this stimulus. 

“I would say it's largely positive for the consumer credit lender,” he said. “This puts more money in folks’ pockets. So the households are, by and large, I believe going to pay down some debt and reserve some of the cash that they may be receiving for that rainy day or for that emergency.” We also discussed prospects for a third stimulus. Listen to the full episode now for insights into what the additional stimulus may include.

Cautious Optimism for Small Businesses

In our Feb. 1 podcast with Sarah Briscoe, senior data scientist at Equifax, we discussed how small businesses will be impacted by the latest round of PPP, as well as small business delinquency and investment. "I'm cautiously optimistic about the next level of stimulus, that perhaps it could save some businesses who may be on the cusp of becoming delinquent," said Briscoe, adding "but I'm not sure how far it's going to go in terms of businesses who are severely struggling right now, if it will save those businesses at this time."

Listen to the full episode now.

Who the Fiscal Stimulus Left Out

Below is an excerpt from my interviews. It is edited for brevity.

We've talked about a few of the things that are in. What is missing? What's not in that second round of stimulus?

deRitis: So I think the biggest thing that's missing is aid to state and local governments. And this has been a sticking point between the Democrats and Republicans. So, no money was allocated there. But what we do know is that state and local governments are under tremendous financial pressure because they employ a lot of teachers, police officers and other first responders. They're under financial pressure because on the one hand, they don't have the income coming in; sales taxes, property taxes are all down because of lack of activity in the economy. And, at the same time they're dealing with the COVID crisis. They are truly on the front lines, providing services to folks who need them.

So that's incurring or raising their costs as well. We saw in the most recent labor market report that there are over a million people who've been laid off in state and local government. That certainly does translate into weakness in the economy overall. Lower spending, right? It's certainly a drag. So expectation is that there will be some additional support coming in a further round of stimulus that president Biden will be introducing.

That might be a good transition point to talk about that proposed third round of stimulus. A good bit of that proposal is around what was missing in round two. So tell us more about what you see in that third round.

deRitis: It's indicating that there is quite a bit of support needed or that President Biden believes is needed to get the economy moving again. In terms of the contents of the stimulus, it's a little bit more of the same in terms of additional support for the pandemic relief. So, additional monies allocated for vaccinations and protective equipment, testing and tracing. Some additional support for households. So another round of stimulus checks, additional extensions of unemployment insurance. Additional support for small businesses, the state and local government financing that we mentioned. There's a proposal for $350 billion worth of financing there. 

And then there is really a focus on additional programs to support everything we need to support the economy when we get to the recovery phase. That includes things like childcare, school support -- all the components that are needed to get people back into the labor force and working again. And then finally, we could talk about what's missing from this program as well, which is infrastructure, but that's also a key component that President Biden has laid out in terms of future stimulus as well. So, there are a lot in here certainly to try to address the immediate issues.

What trends are you seeing in severe delinquencies or the more mild delinquencies?

Briscoe: Right now, the 31 to 90 days past due rates are slightly up year over year. But they've flattened quite a bit since some of the sharp increases that we saw in the beginning of the pandemic, and then a sharp decrease of reopenings, accommodations extended and all of that. So the 30 looks closer to historical levels, although it's still a little bit elevated. Whereas with severe delinquency, think about something that's 91 plus days past due has sharply increased and has remained at a very elevated level. 

Do you see geographic patterns, whether in delinquency or lending trends?

Briscoe: At this time, the southwest has really started to stand out as a place that has seen a lot of high stress. Actually in December, Arizona showed the highest 91 to 180 day delinquency rate in the whole country, and it was over double what we saw a year ago for that state. New Mexico is the fourth highest. Nevada and California are both in the top 10. And a lot of this is driven by the huge impact of retail in these spaces. So it's a lot about what type of economy the state has and how it has been affected by drops in tourism and business travel, as well as conferences drying up. 

More Market Pulse Resources

For more on this interview, listen to our full podcast. To access the latest consumer credit and small business insights, contact your Equifax account executive or visit us online. You might also enjoy checking out by Moody’s Analytics  for the latest economic updates. RESOURCES mentioned in this podcast: