consumer spending
August 5, 2020

The $600/week coronavirus pandemic-related unemployment benefits helped keep consumer spending alive during the ongoing twin health and economic crises. That figure expired at the end of July, however, and nothing has replaced it yet, as Democrats and Republicans remain divided over how much unemployed individuals should receive. If the benefits disappear for good or shrink it could have "a really dramatic effect on the macroeconomy," researchers at the University of Chicago and JP Morgan Chase Institute found, per The Wall Street Journal.

The unemployment boost's expiration has left millions of Americans without the weekly payments. If the lapse continues indefinitely or if Congress decided against renewing the boost in some form, it could cause aggregate spending to fall 4.3 percent in one month, which is greater than the decline seen during the entirety of the 2007-9 recession, the study found. Some Republicans want to bring the number down to $200/week, fearing the current benefits will discourage people from working, despite studies suggesting the contrary. Their proposal wouldn't have quite as drastic an effect on the economy, but the study still estimates a significant 2.3 one-month spending drop. Even reducing the payments to $400/week would lead to a 1.4 percent decline.

That would have ripple effect. If the $600/week payments aren't reinstated, the U.S. economy could lose 1.1 million jobs by the end of the year and reduce gross domestic product by 1.27 percent, while the $200/week plan would likely lead to 1 million job losses, Mark Zandi, chief economist at Moody's analytics, estimates. Read more at The Wall Street Journal. Tim O'Donnell

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