America’s economic rebound is about to get a lot tougher after an initial series of gains from the depths of the pandemic.
Applications for regular state unemployment benefits continue to number more than 800,000 each week and chances in Congress diminished for additional support for the jobless and businesses on Thursday.
What’s more, funding for the temporary supplemental jobless benefit payments authorized by President Donald Trump in early August is running out.
With the help of fiscal stimulus — from aid for small businesses to an extra $600 a week in jobless benefits — the U.S. economy has rebounded faster than many economists expected.
Sustaining a robust pace, however, could prove challenging given the elevated unemployment rate, absence of additional government support and persistent spread of the coronavirus.
The recovery right now is “fragile, and barring additional stimulus, the recovery will be more susceptible to downside risks,” said Gregory Daco, chief U.S. economist at Oxford Economics. “There’s no doubt that the full expiry of the unemployment benefits will weigh on household income and in turn deter consumer spending.”
Matthew Luzzetti, chief U.S. economist at Deutsche Bank AG, said consumer spending could recede over the coming month without help from Congress.
Aneta Markowska, chief U.S. financial economist at Jefferies, expects the pinch to be felt in October, with “significant risk” of softer data just a month before the election if there is no additional stimulus.
This week also coincides with the reference period for the September jobs report’s household survey, informing data such as the unemployment rate.
The August report showed the jobless rate falling much lower than expected to a still-elevated 8.4%, a statistic that likely took some pressure off of lawmakers to come to a deal. The September employment report on Oct. 2 will be the last before Election Day.
Markowska said household spending may not take a hit until next month, in part due to the distribution of Lost Wages Assistance funds.
That program was created by Trump in early August after lawmakers failed to extend the extra $600 in weekly unemployment benefits that millions of jobless Americans had come to rely on during the pandemic. It authorized the Federal Emergency Management Agency to grant what would ultimately be an extra $300 a week for six weeks to states that applied for the funding.