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Thursday, Jul 10, 2025

Expiration of enhanced unemployment benefits to be 'significant hit' to fragile US economic recovery

Expiration of enhanced unemployment benefits to be 'significant hit' to fragile US economic recovery

The expiration of enhanced federal unemployment insurance benefits on Friday will be a "significant hit" to the fragile US economic recovery from the pandemic as roughly 30 million unemployed Americans will lose a crucial financial lifeline, economists have said.
As part of the 2.2-trillion-dollar coronavirus relief bill passed in late March, Congress agreed to provide 600 dollars in federal unemployment benefits per person per week on top of state unemployment benefits.

But those extra benefits are set to formally expire on Friday midnight as Republican and Democratic lawmakers are deadlocked over negotiations on the next COVID-19 relief bill.

The two parties remain far from making a deal, with the extension of unemployment benefits being one of the sticking points, and both sides of the aisle have blamed each other for failing to make progress.

"Republicans tried several ways to extend unemployment benefits. Democrats blocked them all," Senate Majority Leader Mitch McConnell, a Kentucky Republican, tweeted Friday.

In response, House Speaker Nancy Pelosi, a California Democrat, blamed Republicans for failure to act in more than 10 weeks.

"More than ten weeks ago, we passed the Heroes Act, which had a path to containing this virus with testing, tracing, treatment, mask wearing, sanitation. The Republicans said they wanted to 'take a pause.' Well, the virus didn't," Pelosi said Friday at a weekly press conference, referring to the 3-trillion-dollar relief package approved by House Democrats in May.

Senate Republicans on Monday unveiled their 1-trillion-dollar relief package, which would slash the federal unemployment benefits to 200 dollars through September, giving an unemployed worker about 70 percent of previous wages when combined with state benefits. But Democrats want to maintain the current level of benefits through January.

Letting enhanced unemployment benefits expire or even renewing them at a lower amount will be a "significant hit" to the US economy, said Mark Zandi, chief economist of Moody's Analytics.

"There has been talk that Senate Republicans support cutting the benefit to 200 dollars per week. If this becomes law, nearly 1 million jobs will be lost by year's end, and unemployment will be 0.6 percentage point higher," Zandi wrote Thursday in an analysis.

"With unemployment still firmly in double digits and seemingly set to go higher regardless of what lawmakers do now, this would seem a poor policy choice," he wrote.

In the absence of a new supplemental jobless benefit, aggregate US household income will lose roughly 72 billion dollars a month and is likely to weigh meaningfully on consumer spending, according to economists at Wells Fargo Securities.

"Over the past three months, consumer spending has averaged 1.1 trillion dollars a month. Assuming all of the lost income were to translate into a commensurate drop in personal consumption, all else equal, spending for August could be about 78 billion lower, a monthly decline in the neighborhood of 7 percent," Wells Fargo Securities economists Tim Quinlan, Sarah House and Shannon Seery wrote Friday in a report.

"Prior to the current crisis, the largest monthly decline on record was 2.1 percent in figures that go back to the 1950s," they noted.

While warning that a recent resurgence in COVID-19 cases is starting to weigh on the US economic recovery, Federal Reserve Chairman Jerome Powell said Wednesday that "there is a need for some additional fiscal support."

Many Americans that were laid off during the pandemic are going to need support "if they're going to be able to pay their bills to continue spending money to remain in their current rental house or apartment, or house if they own it," Powell said at a virtual press conference.

Former Fed chiefs Ben Bernanke and Janet Yellen have also urged Congress to approve the next COVID-19 relief bill and extend enhanced unemployment benefits as the pace of the US economic recovery could be slow and uneven.

"The unemployment insurance has a humanitarian aspect. We want people to be able to pay their bills and to stay in their homes," Bernanke said at a Congressional hearing two weeks ago, adding the unemployment insurance will also increase aggregate demand and help the economy in general.

The US economy contracted at an annual rate of 32.9 percent in the second quarter of the year, the steepest decline since the government began keeping records in 1947, the Commerce Department reported Thursday.
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