Extra Unemployment Benefits Just Ended: Here’s Why Investors Are Concerned
Change to Impact 11 Million Americans
The pandemic step up in unemployment benefits is coming to an end, which is worrying investors. Roughly 11 million Americans will lose the extra $300 per week in unemployment benefits beginning today.
Despite some hopes that it will drive people back into the workforce, signs are emerging that ending the program may have little impact on labor shortages. Economists point to the fact that in the states which already stopped paying the extra $300, people are not returning to work in large numbers. Getting rid of the benefit could slow down growth at a time when the Delta variant is already threatening economic recovery. The expiration of the extra unemployment benefits is projected to result in households losing $4.2 billion in weekly income.
Labor Shortages Won’t Be Solved
Economists tracking the end of the stepped-up unemployment found that, as of July, only seven of the 25 states that ended the pandemic benefit saw a significant dip in unemployment rates. Meanwhile, recent research from the Federal Reserve Bank of San Francisco found just one in seven workers would decline a job because of the extra $300 a week.
That means unemployment may not be acting as a disincentive to return to work. As a result, ending these programs may not be the spark that solves the labor shortage problem. Rather, the expiration will impact the personal income of households, which could lead to a slowdown in consumer spending. That does not bode well for retailers and consumer-facing companies which have seen sales surge since vaccines rolled out.
COVID-19 to Impact Job Market
The impact of expiring unemployment benefits likely will not begin to show up until the end of September or the middle of October. Some economists expect unemployment claims to continue to decline through the early part of October with the rate of jobless claims returning to pre-pandemic levels in the beginning of next year.
Early 2022 is also when Wall Street watchers expect the Federal Reserve to taper its bond-buying program which has helped prop up the economy. Of course the progress in the labor market is a big factor as to when the Fed will end the program. With the pandemic still raging it will be interesting to see if the economists are right, come the New Year.
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