Spending By Unemployed Americans Plunges

"These Are Staggering Numbers": Spending By Unemployed Americans Plunges As Fiscal Stimulus Ends

by Tyler Durden

Fri, 08/21/2020 - 18:40

One month ago, with millions of newly unemployed Americans fearful about their future in an economy transformed by the covid pandemic, Deutsche Bank's Jim Reid made a remarkable observation: "Recessions don’t usually result in personal income soaring, but this one has thanks to government support around the world." This was shown in the following chart:

This was not a surprise: as Bank of America writes, one of the regular features of US recessions since the 1950s is that they always trigger, with a bit of a lag, an expansion of unemployment benefits. In normal times, benefits in the US are lower than for most other developed market economies, but there is an attempt to close some of the gap during the recession. In recent recessions the additional benefits have tended to be earlier, bigger and last longer. Thus benefits weren't enhanced until the end of the 2001 recession and provided 13 weeks of additional benefits through Mar 2004. However, for the Great Recession of 2008-9 enhanced benefits were enacted on July 2008, a year before the end of the recession, lasting through December 2013, with the unemployment rate down to 6.7%.
Initially the response to this crisis continued the trend toward stronger responses. Facing a much deeper and faster recession, enhanced benefits were almost immediately implemented and included a large bonus benefit of $600/week. Unfortunately, 4 months later and policy has taken a 180 degree turn: the benefit has been allowed to expire with an unemployment rate still north of 10%. Needless to say, it seems a bit early to declare mission accomplished.

That said, the US is now caught in an unprecedented dilemma - as BofA also notes, "Absent government support disposable income would have fallen the most in history; with that support it has risen the most in history."
So what's Congress - and the President - to do?

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