Economic Downturns — Federal Responses
Various preventative measures were taken to reduce the spread of COVID-19 and they had immediate consequences for the U.S. economy. In response to that economic downturn, the CARES Act and other relief laws and actions put trillions of federal dollars into the economy. GAO is issuing bi-monthly reports on this funding and making recommendations on how to improve the federal government’s response.
Overview
GAO has provided Congress with information on the federal response and recovery from this and prior economic shocks, such as the Great Recession of 2007-2009. Here, we review relevant information and recommendations on economic downturns, including response, recovery, and long-term consequences.
Jump to Subject Narrative
You can also explore our past reports on economic downturns broken out by subject.
CARES Act Oversight
To help stabilize the markets and assist affected citizens, Congress provided $2.6 trillion in emergency assistance for people, businesses, the health care system, and state and local governments, through four COVID-19 relief laws. The CARES Act—one of the laws—requires GAO to issue reports on the impact of the pandemic and federal relief efforts. To help improve the federal response to COVID-19, we have made 30 recommendations and introduced 4 matters for congressional consideration.
In our November report, we noted:
- HHS and CDC have provided little scientific explanation for changing key testing guidelines during the pandemic.
- As vaccines and therapeutics are approved for use, more transparency around FDA's scientific reviews of safety and effectiveness is needed to strengthen public confidence in them.
- DOL’s weekly unemployment insurance numbers do not accurately estimate the number of individuals continuing to claim benefits.
In our September, we found that:
- The Department of the Treasury and the IRS don't know how many eligible people have yet to receive an economic impact payment.
- There have been shortages of personal protective equipment and testing supplies because not enough of them are made in the U.S. and global demand is high.
Employment
As of July 31, 2020, Congress appropriated $377 billion for unemployment insurance in response to the COVID-19 pandemic. The rise in joblessness has been greatest for lower-wage workers, for women, African-Americans and Hispanics. A wide range of workers—e.g., gig workers and air travel employees, have been impacted by the pandemic. Early research shows that expanded unemployment insurance, especially for low-income households, has helped soften some of the negative effects of the pandemic.
In the Great Recession of 2007 - 2009, about half of the 15 million U.S. workers who lost their jobs received unemployment insurance benefits. During that time, we found that low-wage workers were less likely to receive unemployment insurance than higher-wage workers. Older workers were also more likely to be out of work for longer periods than younger ones, despite having the lowest unemployment rate among all age groups.
View our past reports on income, employment, and business during recessions.
Affordable Housing
Before the Great Recession, homeownership in the U.S. was at one of its highest points, particularly among minority populations. But when millions of Americans lost their homes during the housing crisis, they turned to renting. Since then, all cities across the nation saw home price increases at varied rates. By 2017, 48% of renter households were paying over 30% of their income to rent—an indicator that rent was already not affordable.
Even before the COVID-19 pandemic, the Department of Housing and Urban Development found homelessness in the U.S. grew 3 years in a row (2017-2019). We have made recommendations to the agency on ways to improve homelessness tracking.
In response to the pandemic, states and the federal government set moratoriums on evictions and made mortgage forbearances available. Eviction moratoriums have helped keep renters housed, but do not address longer-term issues for renters and property owners related to unpaid rent, which could have spillover effects on the larger economy. There are rising concerns that when those end, there may be additional evictions, foreclosures, and possible spikes in homelessness.
View our past housing reports.
Business and Household Finances
National and consumer debt had continued to soar even before the pandemic. Since 2001, federal courts have overseen nearly 350,000 Chapter 7 and Chapter 11 bankruptcies of business. Almost all of the debtors that were larger businesses with assets of at least $100 million—initially filed under Chapter 11. Smaller businesses often file under Chapter 7, making up almost 75% of all business filings.
Over the last 40 years, fewer Americans are making more than their parents. As of June 2018, $163 billion of nearly $1.4 trillion in outstanding federal student loan debt was in default. And many American households have little or no retirement savings. All of these matters will be made worse by the pandemic. GAO has ongoing work in this area, for example on higher education aid and student loan flexibilities in response to COVID-19.
View our past work on debt and bankruptcies.
Access to Food
Even before the pandemic, demand for federal food assistance has increased over time, for example:
- More K-12 students were approved for free school meals and participation in summer meals increased
- Vulnerable populations, such as college students and older adults—were having trouble accessing nutritional assistance
As the pandemic has unfolded, those who receive unemployment insurance benefits have found that they may not qualify for Supplemental Nutrition Assistance Program benefits (SNAP). And food banks are currently under great pressure during the pandemic due to high demand for services and decreases in donations.
COVID-19 has also led to food supply disruptions. As a result, the U.S. Department of Agriculture is:
- Buying about $3 billion in fruits, vegetables, dairy products, and meat; packaging the food in family-sized boxes; and transporting it to food banks and other organizations, delivering more than 74 million boxes from May 15 to August 27. We recommended that it evaluate the program.
- Providing direct payments to agricultural producers of specialty crops (such as fruits, vegetables, and tree nuts), producers that supply local food systems (such as farmers markets, restaurants, and schools), and livestock producers, including dairy producers.
View more of our past food insecurity and safety reports.
Federal Fiscal Pressures
GAO has long been concerned about the federal government’s fiscal outlook given the growing debt. The long-term fiscal path is unsustainable because debt is growing faster than the economy. By the end of FY 2019, debt held by the public had climbed to 79% of GDP. It is expected to reach 107% by 2023 and 195% of GDP by FY 2050.
The COVID-19 pandemic has necessitated a major federal response to address our national public health emergency and resulting economic turmoil. While it is essential to confront COVID-19 and heal our economy, these efforts further complicate our government’s fiscal condition.
As the economy becomes stronger and public health goals have been achieved, a plan to address these fiscal challenges will be needed. In October we testified that the federal government does not have a long-term fiscal plan to control the growing debt. Such a plan should include fiscal rules and targets, as well as an alternative approach to the debt limit. Federal agencies can also contribute to the nation’s fiscal health through things like reducing the tax gap—i.e., the difference between taxes owed and taxes paid.
View more of our past work on these government fiscal pressures.
Federal Debt Held by the Public
State and Local Fiscal Challenges
State and local governments also feel fiscal pressures as revenues decline and spending on safety net programs increases during national recessions, as is the case during this pandemic. These pressures occur at the same time that demand for certain programs—such as Medicaid—increases. Unlike the federal government, most states and many local governments are required to balance their operating budgets. To respond to these pressures, state and local governments are likely to take actions to reduce spending and use other measures to maintain balanced budgets. These actions can further impede economic recovery.
To help ensure that federal Medicaid funding is targeted and timely, we urge Congress to use GAO's Federal Medical Assistance Percentage (FMAP) formula for any future FMAP changes during the current or any future economic downturn.
Read more about state and local fiscal projections in our America’s Fiscal Future collection and view more of our past work on these government fiscal pressures.
Related Key Issue Pages
Learn more about specific issue areas in our related key issue pages.
- Affordable Rental Housing
- America’s Fiscal Future
- Coronavirus Oversight
- Duplication, Overlap, and Fragmentation
- Economic Development and Small Business
- Employment in a Changing Economy
- Financial Literacy
- Financial Security for Older Americans
- Homelessness
- Postsecondary Education Access and Affordability
