Another 1.18 million people filed for unemployment benefits last week as economists worry the expiration of enhanced unemployment benefits will lead to a sharp drop-off in household spending and set back the US economy’s near-term recovery.
Claims dipped last week after two weeks of rises and were the lowest since March but the latest figure from the department of labor marked the 19th week in a row that claims have topped 1m. Before the coronavirus pandemic gripped the US, the record for weekly claims was 695,000 in October 1982.
The figures come ahead of Friday’s monthly snapshot of the job market. Economists expect the unemployment rate to have dipped to 10.6% in July from 11.1% in June, a significant drop but still three times the pre-pandemic level.
Americans have been receiving an extra $600 in emergency benefits since March as part of the government’s coronavirus stimulus package. But that agreement expired at the end of last month and Congress is split over a possible extension. About 30 million people have been receiving the extra cash and it has accounted for 15% of all weekly wages paid in the US.
According to the Economic Policy Institute (EPI) the knock-on effect of removing that cash from the economy could be severe. The EPI estimated 5mn jobs could be lost by July 2021 if it is cut as consumers are forced to cut back on spending.
“The $600 benefit is essential for millions of people to get food, to pay rent, to care for their children, to afford basic necessities. If it is cut off, it will mean a sharp decline in their living standards, an increase in poverty, and completely unnecessary suffering,” Heidi Shierholz, EPI senior economist and director of policy, wrote recently.
A recent paper from the JP Morgan and The University of Chicago argued that allowing the extra payment to expire could “meaningfully reduce” consumption. Eliminating the benefit “could result in large spending cuts and thus potential negative effects on macroeconomic activity”, the authors concluded.
If the $600 payments expire and are nor replaced, the authors project that US consumption will 4.2% – a drop that exceeds the entire 2.9% fall in the Great Recession.
🚨 new predictions of effects of alternative UI benefit supplements 🚨
The UI supplements have expired. Congress is considering a range of options.
What will happen to
2) *UI replacement rates*
— Peter Ganong (@p_ganong) July 31, 2020