April was one of the ugliest months for jobs and the economy in history, both nationally and here in West Virginia. The national unemployment rate increased by 10.3 percentage points, with all 50 states experiencing an increase. West Virginia’s unemployment rate rose to 15.3%, while the state lost over 90,000 jobs.
Yet despite the fact that over 117,100 West Virginians were out of work in April, Governor Justice has remarked that state revenue collections in May are better than expected, and that the state may be facing a significantly smaller budget gap for FY 2020 than originally feared.
After a monthly shortfall of $192 million in April, May’s revenue collections were only $37 million below estimates. So what was the big difference? April’s revenue collections largely reflected March’s economic activity, when the governor’s shut down order was first enacted and the job losses first began. But crucially, April revenues reflected a time before the CARES Act provisions began to kick in.
And those CARES Act provisions, in particular the $1,200 stimulus payments and the $600 in additional weekly unemployment benefits have played a major role in boosting the economy, as the latest personal income data from the Bureau of Economic Analysis shows.
After falling by $413.8 billion in March (on an seasonally adjusted annual rate) (-2.2%), total personal income bounced back in April, growing by $1.97 trillion (+10.5%).
But while total personal income was up for the month, wages and salaries were down, as millions lost their jobs. Total wage and salary income in April fell by $740.2 billion, after falling by $332.2 billion in March.
That loss in wages in salaries, however, was offset by an influx of income from federal transfers as part of the CARES Act. The $1,200/per person economic impact payment boosted total incomes by $2.6 trillion in March, while unemployment insurance benefits added $430.1 billion, including $132.0 billion from the additional $600/week in Pandemic Unemployment Compensation, and $24 billion from the Pandemic Unemployment Assistance payments for the self employed and gig economy workers (all figures on a seasonally adjusted annual rate).
While state-level personal income data isn’t yet available, we know that there has been a major impact from the CARES Act in West Virginia. For instance, estimates from the Institute on Taxation and Economic Policy show that the $1,200 economic impact payment pumped $1.87 billion into West Virginia. The $600 in additional unemployment insurance benefits likely added another $426 million into the state based on the number of weekly continued unemployment claims since April.
So while the CARES Act support has helped the state buffer the economic turmoil, that support is temporary. The $1,200 economic impact payment was a one-time stimulus,with little sign that Congress will enact another, while the $600 boost to weekly unemployment insurance benefits is set to expire at the end of July. Meanwhile, the Congressional Budget Office projects that the national unemployment rate will stay above 15 percent for most of 2020, and remain above 9 percent in 2021, more than double its pre-coronavirus level and comparable to the worst of the Great Recession.
If these temporary measures cease before the economy has fully recovered, West Virginia will face an even more significant budget problem in FY 2021 than the current $300-$500 million gap it is facing this current budget year.
The best course of action for Congress to take is to ensure that these policies continue as long as economic conditions remain depressed.
