Back to “The Consumer or The Job?”
It seems another factor was thrown into this “feedback loop” last week: the expiration of emergency unemployment benefits.
A catch-all spending bill was killed on Thursday and with it the extended emergency unemployment benefit package put into place nearly 18 months earlier along with some other measures. As an immediate result, 1.3 million Americans were slashed from the roster on Friday. While this will be very painful for those affected, the long-term effects of the package’s overall expiration may prove to be much more painful for the economy as a whole.
Lori Montgomery of The Washington Post appeared on a recent PBS NewsHour and made the point that as of June 2, or when the extended unemployment benefit package expired, there were some 5 million Americans receiving emergency benefits while about 4 million Americans were receiving regular jobless benefits. So while 1.3 million were “cut off” last Friday, so to speak, there are another roughly 3.7 million Americans who will be cut off from unemployment benefits when the package comes to an end at the end of October. In addition, the 4 million who are receiving regular unemployment benefits will not have an “emergency” net to fall back on.
If we do some truly back-of-the-envelope math, this package expiration seems likely to equal lost consumer spending of between $65 and $130 billion over the next 12 to 24 months. More specifically, and I make the very rough assumption that all who are unemployed on June 2 stay unemployed for a year after their benefits expire, $130 billion is derived by taking the 9 million unemployed and assuming $1,200 in monthly funding per person. I then discount that figure back generously to account for those who do find jobs, hopefully, considering May’s dismal private sector hiring, we’re looking at, let’s call it, $65 billion in lost consumer spending. And there’s the range from above for just one year.
These numbers are a small percentage of GDP but worth watching and especially the psychology to accompany it. There is the possibility that this expiration could affect consumer spending by feeding into the “feedback loop” that I’ve talked about many times. If the employed continue to fear the job market and the ability to find a new job if needed while also knowing that government support is more limited, many may start saving more vigorously should that rainy day come. Considering that the consumer sector has been about 70% of GDP in recent years, it’s worth making note of any possible macro-changes to the mindset driving that sector.
On the flip side of all of this, and to the positive, is the possibility that small business owners will begin directing the money they’ve been forced to put toward unemployment benefits toward something more useful: hiring.
Disclosure: No positions.
