Congress could cost Americans $15 trillion and 6 million jobs if it doesn’t raise the debt ceiling, Moody’s says

DEBT
House Speaker Nancy Pelosi/Senate Minority Leader Mitch McConnell

  • Failing to lift the debt ceiling would spark a recession similar to the financial crisis, Moody’s said Tuesday.
  • Nearly six million jobs would be erased and tanking stocks would cost Americans $15 trillion.
  • The fallout would be “catastrophic,” especially since the US is still recovering from COVID, Moody’s added.
  • See more stories on Insider’s business page.

Failure to raise the limit on how much the US government can borrow could spark one of the biggest stock-market crashes in history and erase trillions of dollars in household wealth, Moody’s Analytics said in a Tuesday report.

Congress has mere weeks to avoid that, and progress so far has been slow.

Democrats are pushing forward with their own bill to suspend the debt limit, allowing the government to keep borrowing cash and paying off its bills. But GOP lawmakers have made it clear they won’t support such legislation. And Democrats’ slim majority in the Senate means any dissent within their ranks could kill the effort.

Treasury Secretary Janet Yellen has warned that the government will hit the ceiling in mid-October. If the limit isn’t lifted by then, the country faces “cataclysmic” economic fallout, economists led by Mark Zandi said. The team’s simulations show a default on US debt powering a downturn similar to that seen during the Great Recession. Gross domestic product would slide by nearly 4%. The country would lose almost 6 million jobs. The unemployment rate would surge to 9% from 5.2%.

And stock prices would crash by one-third during the worst of the selloff. The market nosedive would swiftly wipe out $15 trillion in household wealth.

“If lawmakers are unable to increase or suspend the debt limit … the resulting chaos in global financial markets will be difficult to bear,” the Moody’s economists said, adding the US and global economies “still have a long way to go to recover” from the COVID recession.

A recession of Congress’ own making

The Tuesday report sheds more light on just how dangerous a government default would be. It also joins several warnings already made by the Biden administration and other economists.

The White House told state and local governments on Friday that failure to lift the debt ceiling would force stark cuts to federal support. Programs ranging from free school lunches to Medicaid would face a funding freeze. Disaster relief from FEMA would be dramatically scaled back. And the country would likely slide into recession as governments are forced to balance their budgets and slash jobs.

David Kelly, chief global strategist at JPMorgan, used more colorful terms to describe the fallout. Congress’s last-minute negotiations over the debt ceiling are similar to kids playing with a “box of dynamite,” he said in a September 13 note. Each generation of lawmakers has been “just a little more reckless and irresponsible than the last,” and it may be time to retire the debt limit entirely before it forces a government default, he added.

To be sure, Democrats and Republicans are both confident the government will avoid a debt-ceiling downturn. After all, this debate has happened 57 times in the last 50 years, and solutions were reached each of those times. Lawmakers are just split on how to solve the problem today.

The easiest solution requires 10 Senate Republicans to join Democrats in voting to lift or suspend the limit. Yet Senate Minority Leader Mitch McConnell has been adamant that GOP members won’t support such action.

Democrats, however, have slammed Republicans for failing to undertake the historically bipartisan action. The GOP is pursuing a “dine-and-dash of historic proportions,” as they racked up trillions of dollars in debt with their 2017 tax cuts and last year’s stimulus spending, Senate Majority Leader Chuck Schumer tweeted Tuesday.

Democrats will need all 50 Senate members to back the House’s last-ditch fix if they’re to sidestep Republicans and go it alone. With members already disagreeing over other legislation, the “political brinkmanship … is thus painful to watch,” Moody’s said.

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After a vicious year of bankruptcies, some retailers are still at risk. 13 companies, including Rite Aid, Belk, and Neiman Marcus, could be the next to default.

empty sears store closure retail apocalypse
A worker removes sale banners inside a closed Sears department store one day after it closed in January 2019. REUTERS/Mike Segar

  • Moody’s identified 13 retailers at the highest risk of defaulting or filing for bankruptcy in 2021.
  • Apparel and department store retailers, they said, remain the most at-risk.
  • Men’s Wearhouse, Talbots, Belk, and Party City all made the list.
  • See more stories on Insider’s business page.

Apparel and department stores are the most at risk for defaulting on their loans in 2021, analysts with Moody’s Investors Service said in an April 7 report.

After a brutal year in 2020, in which dozens of retailers filed for bankruptcy, more filings could be coming, but not as many as last year, the analysts said.

Apparel stores accounted for about half of defaults in 2020, and the sector is still “in the eye of the storm,” as it confronts long-term pressures, like declining mall traffic, the analysts said.

Although the 2021 forecast “marks a vast improvement over the prior year, it is still historically high relative to prior recoveries, pointing to significant ongoing risk for an industry not yet out of the woods,” the report said.

Read more: Experts say brick-and-mortar retailers could rebound post-pandemic – but only if they channel the e-commerce boom back to their physical outposts

The analysts identified 13 stores at the highest risk of defaulting, and most of them are apparel stores.

Rite Aid

Rite Aid store in Los Angeles
MIKE BLAKE/Reuters

Rite Aid, the US pharmacy chain with 2,500 stores in 19 states, struggled amid the pandemic as fewer people came down with colds or coughs as they sheltered at home. The company cut its full-year forecast for 2021, and it has $1.5 billion in outstanding debt rated high risk. Moody’s said its competitive disadvantage and near-term maturities are putting it in danger of default.

Party City

Party City
Richard Drew/AP Images

“Debt-strapped” Party City eased its heavy burden last year when it announced a bond restructuring, Moody’s said. While the party retailer is still at risk of default because of ongoing challenges from low demand, the risk isn’t “immediate,” the analysts said.

Talbots

Talbots
Reuters

Women’s clothing store Talbots is among apparel retailers at risk. The company is facing sector challenges, as many consumers have turned away from malls amid the pandemic. Talbots doesn’t have much cash on hand, and it’s debt is coming due soon, analysts said.

Belk

belk
John Greim/Getty Images

Belk, a private apparel retailer with locations in 16 states, already marked the first bankruptcy of 2021. The Charlotte, North Carolina-based department store chain has struggled like other apparel retailers amid the pandemic. Plus, it has a lot of debt and not a lot of cash on hand.

Men’s Wearhouse

men's wearhouse ties.JPG
REUTERS/Mario Anzuoni

Men’s Wearhouse was among the long-struggling companies that defaulted in 2020, along with retailers like J.C. Penney and J. Crew. The formal apparel retailer was hit hard during the pandemic as people stayed at home and opted to wear comfy clothes instead of formal wear. Moody’s said the company’s outlook is currently stable, though it’s still at risk amid continued sector challenges.

Nieman Marcus

neiman marcus
Katie Warren/Business Insider

Neiman Marcus was also among retailers that filed for bankruptcy in 2020, as it was under “inexorable” pressure from the pandemic. The department store chain was “one of the highest-profile companies to succumb to bankruptcy” in 2020, analysts said, but it “emerged from Chapter 11 in September after shedding more than $4 billion of debt.” The company’s debt rating remains below investment-grade, however, keeping it at risk of default.

J. Jill

j. jill store
Jeffrey Greenberg/Education Images/Universal Images Group via Getty Images

J. Jill, owned by Jill Acquisition, restructured its debt in 2020, giving the company “additional time to recover from coronavirus-driven disruption in the apparel retail industry,” Moody’s said at the time. Though the women’s apparel retailer still has risky debt on hand with weak liquidity, Moody’s rated it at stable.

Shoes for Crews

shoe organizers container store
Shoe organizers. The Container Store

Shoes for Crews, owned by SHO Holding, extended the deadline for its debt maturity last year during the pandemic. Still, the maker of slip-resistant, safety footwear for workers is at risk of default, as it faces the continued challenges of the apparel industry and is strapped with debt.

Outerstuff

Bills fans
Buffalo Bills fans in Orchard Park Stadium on January 9, 2021.

Outerstuff, the maker of major league sports apparel for youth, is one of the several retailers facing challenges as an apparel store. The private company is at risk of default as it has an “unsustainable capital structure at current levels of performance, small revenue scale, narrow product concentration primarily in licensed children’s sports apparel in North America with a small, but growing, adult and international presence, and reliance on licensing arrangements from several sports leagues for a significant majority of revenue,” Moody’s said in a March 26 analysis.

Nine West

Nine West
AP

Nine West, owned by Premier Brands Group Holdings, filed for bankruptcy in 2018. It reduced debt and emerged from bankruptcy in 2019 and sold its Anne Klein trademark. Still, the retailer is at risk of default because of a drop in revenue during the pandemic, and “it will take some time for the company to demonstrate a sustainable turnaround in light of the ongoing challenges in key segments of its wholesale customer base and the overall global apparel environment,” Moody’s said in a March 29 note.

Service King

car mechanic, car repair, looking under the hood of a car
Michael Stuparyk/Toronto Star via Getty Images

Midas Intermediate Holdco, which owns Service King, has a lot of debt, and the bill is coming due. The Richardson, Texas-based car repair company has $1.1 billion in debt rated below investment-grade, Moody’s said.

99 Cents Only stores

99 cents only
Facbook/99 Cents Only

Dollar-store chain 99 Cents Only, which has 350 stores in four states, had distressed exchanges in 2017 and 2019. The discount retailer is at risk because of a competitive disadvantage and operational and execution issues, Moody’s said.

Boardriders

surfing
Frank McKenna/Unsplash

Boardriders, the maker of popular surfing, skateboarding, and snowboarding apparel brands like Billabong and Roxy, went bankrupt in 2015, and now it’s at risk of default again as the company faces sector challenges and a lot of debt amid the continued pandemic, Moody’s said. In the future, though, the analysts expect the company will see benefits from its acquisition of Billabong.

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The US is leaving economic growth on the table by failing to close gender gaps in pay and hiring, Moody’s says

DC apartment concierge coronavirus
elecia Lewis, 50, works at a computer behind the desk where she works as a concierge at an apartment building in Chevy Chase, MD.

  • Failure to close gender gaps in the US dampens growth and hurts recovery, Moody’s said Monday.
  • The pandemic erased years of progress for prime working-age women participating in the labor force.
  • Closing the labor-participation gap between men and women can lift GDP by 5%, according to the IMF.
  • Visit the Business section of Insider for more stories.

Closing gender gaps in the US labor market can accelerate the economic recovery and provide a lasting boost to overall output, Moody’s Investors Service said Monday.

Gender disparities are nothing new to the US economy. Women earned less than men on average before the pandemic, and, during it, a lack of family-leave benefits forced many women out of the labor force as they assumed caretaking roles.

The gaps weighed on productivity before the pandemic, and the health crisis has only exacerbated the problems, the team led by Shahdiya Kureshi said.

For one, pursuing gender equality can swiftly lift gross domestic product. Closing the labor-participation gap by just 25% in the US would increase output by 2%, according to the International Labor Organization. Fully erasing the disparity would boost GDP by 5%, the International Monetary Fund estimated.

The recovery so far hasn’t been promising. Employment gains for both men and women were roughly the same from May 2020 to January 2021. Yet where men have retraced more than half of their decline in labor-force participation, women have only recovered 40% of their slump. This difference “weakened household consumption and financial stability” late in the pandemic, Moody’s said.

Within the prime working-age population of Americans 25 to 54 years old, labor-force participation among women plummeted and reversed years of steady gains. The rate peaked at 76.9% in January 2020 before plummeting as low as 73.5%.

The rate stood at roughly 75.5% at the start of 2021, the same level seen in January 2018.

One driving factor behind the harsher fallout is women’s overrepresentation in sectors hit hardest by the pandemic. Pay in the food preparation, personal care, sales, and education industries – where women make up the majority of workers – is between 18% and 40% below the average median weekly earnings for women. These sectors also saw significant pay disparities between men and women, according to government data cited by Moody’s.

Mothers have also shouldered a heavier burden through the health crisis. Women aged between 24 and 44 who weren’t employed in July 2020 were nearly three times more likely than men to name childcare responsibilities for their lack of work, according to Census Bureau data.

Where Congress can step in

There are already a few clear steps policymakers can take to close the aforementioned gaps, Moody’s said. Passing national family- and maternity-leave policies can iron out differences seen across various state programs, the team said.

“As women assume most of the family caretaking role, dependent care responsibilities that are not subsidized or compensated can pose a significant barrier for women’s entry into the workforce,” they added.

Childcare costs have also surged in recent years, making the lack of sufficient leave policies even more taxing for women. Married couples with children under age 5 spend 10% of their average monthly income on care for a single child. That sum exceeds the 7% level deemed affordable by the Health and Human Services Department, Moody’s said.

There’s also legislation that can quickly narrow the gender pay gap. The Paycheck Fairness Act has recently been reintroduced and aims to improve pay transparency at companies. Taking up such legislation and other pay-equity measures can elevate women in the workplace, improve employee retention, and productivity, Moody’s said.

Some promising legislation is on the brink of passage. The $1.9 trillion stimulus bill likely to be passed on Wednesday includes a child tax credit for parents to receive up to $3,600 per child. President Joe Biden has indicated he aims to make such a credit permanent. That would revolutionize how the government assists parents and could counter the pressures women feel to pass up work for caretaking.

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