As Stimulus Dries Up, Americans Are Staring Over an Income Cliff

July 27, 2020 2:10 PM UTC
While a pandemic stimulus check would provide some liquidity to Americans, a sharp drop in unemployment benefits is a greater concern.
  • Unemployment benefits will expire soon, leaving millions in the lurch.
  • Another stimulus check is helpful but probably won’t help unemployed people pay their mortgage for long.
  • Without renewed benefits, Americans could be facing a sharp decline in income.

An important milestone in the battle against Covid-19 is approaching in just a few days. Without some kind of a bridge, thousands of American households could be shoved off an income-cliff.

When the pandemic hit and lockdowns were enforced, the government stepped in with a historic stimulus package that has propped up consumer income over the past few months. Much of that stimulus is about to run out, leaving many people struggling to make ends meet.

Unemployment has been declining, but that could change amid renewed lockdowns. | Source: Trading Economics

Extra Unemployment Benefits Set to Expire

At the end of this month, the government’s added coronavirus unemployment insurance is set to expire. For many, that means $600 per week will suddenly disappear from their income at an already difficult time.

Some argue that the generous stimulus benefits are keeping workers from returning to their jobs, which would be the case if the U.S. was back on track to resume as normal. Instead, it’s quite the opposite.

Coronavirus cases are surging exponentially in several U.S. states, and outbreaks in Australia and Asia have experts warning that we could see a second, more deadly wave.

Many businesses are already struggling to keep the lights on amid reduced capacity and new health and safety rules designed to protect their workers. Another lockdown could crush them all together.

Without Stimulus, Many Households Will Struggle

For many, there are no jobs to go back to. They are relying on the government’s added unemployment benefits to keep their homes and pay their bills. This is especially true for the hospitality sector, where a sharp drop-off in tourism has been disastrous for the entire industry. 

We’re not just talking about belt-tightening, either. As Charles Schwab’s Liz Ann Sonders pointed out, the income reduction is substantial. Government support for the swaths of unemployed workers will go from $24 billion per week to just $6 billion per week. 

The reduction in government spending is about to cripple many U.S. families. | Source: Twitter

Lower Income Spells Trouble for the Economy

What will happen to those who are depending on the unemployment insurance to pay their rent or mortgages? It’s anyone’s guess.

Mortgages will be a concern as it’s likely to cause more defaults and put a strain on lenders. Consumer spending will also take a nosedive as people look for ways to cut back on spending. 

A decrease in personal income was coupled with an increase in consumer spending in May. As government support dwindles, both are likely to decline. | Source: Bureau of Economic Analysis

Perhaps the most worrying result of the reduction in government stimulus is a lack of healthcare. With so many people unemployed and struggling for access to quality healthcare, it’s not a stretch to assume that a percentage of these people will be hesitant to seek medical care.

That could be detrimental in the U.S. fight against the pandemic because it may cause an increase in more severe complications in coronavirus patients that were unwilling to pay for healthcare. 

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: July 27, 2020 2:31 PM UTC

@Laura_h_says

Laura has been working as financial journalist covering US markets for more than a decade. Her work can be found in a wide variety of publications including Yahoo Finance, InvestorPlace, Nasdaq and Benzinga. Visit her website, contact her at lmariehoy@gmail.com, see her LinkedIn profile here, or check her out on Muck Rack. Laura Hoy is a Trusted Journalist.