Capitol Report: Surprising May jobs report weighs on push for another big aid package, analysts say

“While 13.3% unemployment is nothing to write home about historically, there is some merit to the argument that a better-than-expected number further reduces the sense of urgency on Capitol Hill for a fourth stimulus bill and also bolsters Republicans’ position that a comparatively small-scale package in the $1T range is all that’s needed from here (versus the Democrats’ ~$3T HEROES Act),” said Henrietta Treyz, director of economic policy at Veda Partners, in an email to MarketWatch.

Related:‘The biggest payroll surprise in history’ — economists react to May jobs report

And read:Surprising May gain in jobs dents view that Fed will stay at zero for years

“There is a lessening of the crisis mentality forcing Republicans to act,” Ben Koltun, a senior research analyst at Beacon Policy Advisors, told MarketWatch in an email. “The GOP would have been hard pressed to say they weren’t going to support major legislation when unemployment is above 20 percent, rivaling the depths of the Great Depression. With the stock market nearly recovered and businesses and employment on the upswing, the necessity for quick action dissipates.”

U.S. stocks SPX, +2.71% DJIA, +3.28% have rallied from their March lows, and the broad S&P 500 index traded on Friday within 5% of its February peak, while the tech-heavy Nasdaq Composite COMP, +2.14% jumped to an intraday record.

“Still, a Phase Four deal is likely at the end of July,” Koltun added. “Republicans don’t want the unemployment numbers and economic recovery to plateau. So they will still come to the table with Democrats.”

The next package has been called Washington’s “Phase 4” response to the coronavirus crisis as it would follow April’s $484 billion “Phase 3.5” measure, which came after the $2.2 trillion CARES Act that passed in late March. Before that, Washington delivered a mid-March package costing an estimated $192 billion, and an $8 billion measure that was finalized in early March.

Related:How Congress is spending trillions in response to the coronavirus crisis — in one chart

Koltun also noted that Friday’s jobs report can be attributed to the government intervention so far, such as the Paycheck Protection Program and the government transfers to buoy personal income.

Treyz said the “national conversation will drift back to the U.S. economy, but if anything delays a stimulus IV bill from here, it won’t be just the 13.3% unemployment number.”

“There are two other developments that play a role in reducing our odds of a stimulus bill happening in July from their previous near-100% range to ~80% today,” she said. “We’ve seen a significant change in China-Hong Kong relations, which caused a substantial outcry amongst lawmakers in Washington, and we’ve seen the nation breakout into protests over racial inequality in the wake of the killing of George Floyd.”

See: Revoking Hong Kong’s special status is Trump’s ‘nuclear option,’ analysts warn

Also:Dramatic week’s events open fissures between Trump and military brass, Trump and GOP lawmakers

Treyz also said the “immediate effect of this jobs number is probably most obviously impactful to the $600/week booster payment included in the CARES Act.”

“That’s always been an issue for the Republican caucus and now they’ll likely dig in further to reduce or shorten the duration of any extension in that provision beyond July 31,” she said.

See:The extra $600 Americans receive in weekly unemployment benefits ends in July

Even before Friday’s jobs report, Republicans in recent weeks have questioned the need for additional aid. Analysts at Height Capital Markets last month noted that the White House is “focused on a reopening narrative that seems at odds with significant additional legislation.”

Now read:Next coronavirus aid package to pass Congress by late July, analysts say