The United States economy has been in bad shape for months. Since March, tens of millions of Americans have lost their jobs, more than 100,000 small businesses have closed permanently, and countless people have had their lives and finances altered. Unfortunately, the worst may be yet to come, soon. Here are four reasons why August could be the most terrible month of the coronavirus recession.
1. Enhanced unemployment benefits will end on July 31
In March, the CARES Act was enacted, and one of the most important features of the stimulus package was to increase unemployment benefits by $ 600 per week. As such, the average recipient now receives $ 980 per week, which, for the average American without a job, completely replaces their lost paychecks. Some workers with lower wages, in fact, are in a better financial position with respect to unemployment. And while conservative lawmakers have argued that people shouldn’t get out of losing their jobs, providing those tens of millions of unemployed Americans with additional funds each week has also helped prevent the American economy from falling into an even worse recession. .
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But that $ 600 weekly increase came with a time limit, and if the House and Senate can’t agree on a plan to extend it, it will run out in late July. Republican lawmakers argue that the unemployment rate fell in May and June compared to the state in April, claiming that this means that the improved benefit is no longer necessary. They also suggest that it is discouraging some people from going back to work. The counter argument is that the current official unemployment rate of 11.1% is still ugly, in fact higher than in the worst month of the Great Recession, and official figures are almost certainly underestimating the unemployed.
If the weekly additions of $ 600 to unemployment payments really go away in August, the average unemployed American will start charging just $ 380 per week. Many will not make ends meet in that scenario, which means that many people will accumulate costly debt, fall behind on their bills, and stop injecting money into the economy at a time when increased consumer spending is vital to maintaining the companies. afloat and employees still working.
2. A second stimulus test may not be on the cards
Many Americans are counting on a second stimulus check to follow the first round of payments of $ 1,200 per adult that was made under the CARES Act. But some lawmakers have hesitated to commit to another round, and while there is no specific deadline for a decision on that score, it is extremely likely that the issue will come up in the Senate when it meets again in late July. However, if that agency’s deliberations on the direct stimulus front do not lead to another great round of controls, it will not only be bad for morale, but it could also cause many people to reconsider their spending.
The result? Many, many businesses, from family stores to giant companies, could experience a drastic drop in revenue as consumers control their spending. That, in turn, would likely lead to even smaller operations out of business forever.
3. Many states may have to return to the starting point with blocking measures
At this point in the pandemic, many health experts hoped that the US would have made great progress in stopping and containing COVID-19. Instead, the number of daily new cases is rising to its worst levels by far in hot spots across the country, with no signs of a spike on the horizon. As more state governments are forced to re-impose tighter restrictions, in late August, many areas of the country could again find themselves in blockade conditions similar to those in effect in March and April, when this whole disaster began. And that could only lead to a sharp rise in unemployment.
4. The stock market may begin to reflect reality.
Despite the sharp drop in the market in February and March, stocks have rebounded very well, so much so that if you saw the average portfolio today, you would hardly know that we are in a recession. But if the COVID-19 crisis continues to worsen, unemployment rises, and traders lose their optimism about the speed at which companies will return to something akin to normal, the market could react in a very unfavorable way, causing stocks shares fall again.
At a time when the news is overwhelmingly bleak, it pays to be optimistic about the economy. But it is also difficult to ignore the risks the country faces when July comes to an end. Unless the stars align in an extremely lucky way, August could end up being the most difficult month of 2020 for Americans. Let’s prepare for that possibility as we try in some way to hope for the best.
