THINK ABOUT THIS
INVESTMENT RESEARCH
On The Job
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Deltec Bank & Trust Limited
JuLY 5, 2020
The $2.2 trillion CARES Act Congress passed in March set aside an additional $600 per week in unemployment insurance from the Federal Government as a financial cushion for the millions of Americans out of work during the pandemic. US personal income has fallen over $1 trillion on an annualized rate, but benefit payments have increased by $1.3 trillion. The emergency programs have more than filled the gap. Unemployed persons who made less than $62,000 annually at work are now making more from the unemployment than they did from their jobs.
Policy makers are aware of the huge deficits they are running and of the incentives against work they are fomenting. These programs are finite. But if these benefits were allowed to expire on July 31 without extension this would lead to a significant fall in personal incomes. With rising coronavirus cases stalling states reopening efforts only adding to the pressure, we think policy makers are likely to approve a new/final round of stimulus checks to avoid a consumption cliff.
EXECUTIVE SUMMARY
Checks from the Federal Government have more than made up for lost income from jobs.
The last week Americans are eligible for the benefit is the week ending Saturday July 25th. If the checks stop now there will be a cliff. Will the Government extend the program?
With a Second Wave of infections, reopening slowing and permanent job losses, it is imperative they extend.
We might get one more package to compensate for lost income, but this will be the last month of checks.
Beyond that, there is still a big cliff, and permanent scarring in the U.S. jobs market.