A cash cliff spells trouble for America’s unemployed and everyone else

(Reuters) – Judith Ramirez is preparing for July. That’s when the hotel housekeeper and her electrician husband, who have been out of a job for three months, expect their combined unemployment benefits to drop by more than half, and their deferred mortgage payment of $ 1,500 per month due. his home in Honolulu.

It’s a cash cliff that millions of Americans face this summer when the emergency benefits, which raised the income of American consumers by 10.8% in April, expire. The loss of that safety net is looming in the coming weeks, long before a sustained recovery takes hold of the sudden and deep recession caused by the new coronavirus. Personal income fell 4.2% in May, data showed on Friday.

The $ 600 supplement that Congress added to weekly unemployment benefits will expire July 31.

Without new support, recipients face a substantial loss of income, particularly devastating for those like the Ramírez family who worked in affected sectors like hospitality where new jobs are scarce. During high unemployment and a still raging pandemic, the end of improved unemployment benefits could drag consumer spending, trigger a wave of missed rent and mortgage payments and translate into a slower recovery, economists said.

That’s a big concern for Rachel Finchum, 55, who lost her job at a Nashville-based t-shirt printing company after 18 years. She has sought leniency on her mortgage, but is concerned about what will happen when government programs run out.

“I am very afraid to think that I will not be able to pay my bills,” Finchum said. “With my future so uncertain, I have a house payment and bills based on 18 years of what I was doing.”

BENEFITS SPENDED

As the new coronavirus pandemic exploded in March and local authorities shut down much of the American economy, the Trump administration and Congress softened the blow by moving quickly to deploy a mosaic of emergency aid.

The centerpiece: stimulus controls for most households and more generous unemployment benefits for tens of millions of newly unemployed Americans.

Combined cash aid provided $ 3 in support for every $ 1 in lost income in April, estimated Gregory Daco of Oxford Economics. And until July 31 expires, the additional weekly unemployment payment of $ 600 on average makes up for lost earnings due to unemployment and reduced hours, he said.

In fact, about two-thirds of people eligible for unemployment benefits may earn more in benefits than they earned while working, researchers from the University of Chicago found.

For low-wage workers like Ramírez, aid was particularly critical. Households generally cut spending when coronavirus-related restrictions began in March. But after the government began issuing stimulus checks, low-income households resumed spending much faster than higher-income households, and much of the cash went to staples such as utilities and groceries, Michael Stepner said , from Opportunity Insights at Harvard University.

Disbursements from low-income households are now only 3% lower than pre-crisis levels, compared to less than 13% for high-income households.

When the fringe benefits are exhausted, unemployment benefits will return to their typical pre-pandemic levels, low by design to encourage people to look for a lot of work. In 15 states, the maximum unemployment benefit would replace less than half of the median income for a worker with a high school diploma, according to Kathryn Anne Edwards, a labor economist at the RAND Corporation.

That may pressure some people with little cash to risk their health to take a low-paying job at a restaurant or delivery company, which can expose them to the virus, said Julia Coronado, president of MacroPolicy Perspectives and a former Reserve economist. Federal. “That is a very terrible choice for our policymakers to tell people what to take,” he said.

And given that unemployment is expected to remain high and companies in some sectors can’t open, many won’t be able to find even those jobs, he said.

Falling support is also a problem for the overall economy, as it cut GDP by 2.5% in the second half of 2020, estimated Jason Furman, a Harvard professor who chaired the Council of Economic Advisers under President Barack Obama.

Congress may consider at least a partial extension of benefits, but uncertainty is causing some families to be cautious about their spending, said Mark Zandi, chief economist at Moody’s Analytics.

“Low-income households are concerned that the pandemic will escalate and further disrupt their incomes,” said Zandi. “They’re also not sure how much help, if any, comes from Washington, DC”

Ramírez, 40, spent a month chasing his unemployment benefits after he quit his job in late March. When the payments finally started coming, Ramírez deposited them to build a cushion.

Knowing that the benefits will be drastically reduced and not knowing when they will return to work, Ramírez and her husband live frugally. To save money on groceries, they wake up at 5 am approximately once a week to queue at a nearby food bank.

Ramírez likely has cut hours if he gets his job back in August, his manager told him. The hotel that employed her husband is still closed.

“We need to have a backup,” said Ramírez, whose daughters are 1 and 5 years old. “I have children to feed.”

For Finchum in Nashville, there is no chance of going back to his old job. His employers were about to retire, so they decided to close the business when the pandemic broke out.

“The stimulus package has been a lifesaver,” he said.