4 reasons August could be the darkest month in this recession yet
The US economy has been in bad shape for months. Since March, tens of millions of Americans have lost their jobs, over 100,000 small businesses closed permanently and countless people saw their lives and finances disrupted. Unfortunately, the worst may be yet to come – soon. Here are four reasons why August could be the worst month in the coronavirus recession yet.
1. The subsidized unemployment benefits will expire on July 31
In March, the CARES law 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 beneficiary now receives $ 980 per week – which, for the average unemployed American, completely replaces their lost paychecks. Some low-wage workers, in fact, are in better shape financially unemployed. And while conservative lawmakers have argued that people shouldn’t get out until they lose their jobs, providing those tens of millions of unemployed Americans with extra cash every week has also helped prevent the U.S. economy from slipping into a recession. even worse.
But that weekly $ 600 boost came with a time limit, and if the House and Senate can’t agree on a plan to stretch it, it will run out at the end of July. Republican lawmakers argue that the unemployment rate fell in May and June from its April level, and say that means the improved benefit is no longer needed. They also suggest that it discourages some people from returning to work. The counter-argument is that the current official unemployment rate of 11.1% is still lousy – higher, in fact, than it was during the worst month of the Great Recession – and the official figures under- almost certainly estimate the unemployed.
If the weekly additions of $ 600 to unemployment benefits actually disappear in August, the average unemployed American will begin to collect only $ 380 per week. Many will fail to make ends meet in this scenario, which means that many people will rack up costly debt, fall behind on their bills, and stop pumping money into the economy at a time when more. Consumer spending is vital to keeping businesses afloat and employees still in business.
2. A second raise check may not be in the cards
Many Americans are banking on a second dunning check to track the first round of payments of $ 1,200 per adult that was made under the CARES Act. But some lawmakers have been reluctant to embark on another round, and while there is no specific deadline for a decision on this, it is extremely likely that the matter will come up in the Senate when it is resumed. end of July. If this body’s deliberations on the direct stimulus front don’t lead to another big round of checks, however, it won’t just be bad for morale – it could cause a lot of people to rethink their spending, too.
The result? Scores of businesses, from mom-and-pop stores to giant corporations, could experience a drastic drop in revenues as consumers curb their spending. This, in turn, would likely cause even more small businesses to go out of business for good.
3. Many States may need to go back to square one with foreclosure measures
At this point in the pandemic, many health experts were hopeful that the United States had made major strides in stemming and containing COVID-19. Instead, the number of new daily cases is by far its worst in hot spots across the country, with no signs of a peak on the horizon. As more state governments find themselves forced to reimpose tighter restrictions, many parts of the country could by the end of August find themselves in lockdown conditions similar to those in effect in March and April, when this whole mess started. And that alone could lead to a sharp rise in unemployment.
4. The stock market can begin to reflect reality
Despite the slope stock market crash in February and March, stocks rebounded well – so much so that if you took a look at the average portfolio today, you almost wouldn’t know we’re in a recession. But if the COVID-19 crisis continues to worsen, unemployment rises, and traders lose their optimism about how quickly business will revert to something that looks like the old normal, the market could react to very unfavorably, causing market values to fall again. .
At a time when the news is extremely grim, it is worth being optimistic about the economy. But it’s also hard to ignore the risks the country faces as July draws to a close. Unless the stars align in an extremely lucky fashion, August could end up being the toughest month of 2020 for Americans yet. Let’s all prepare for this possibility while somehow trying to hope for the best.