The unemployment aid deal being negotiated by Democratic and Republican lawmakers and the White House could at best maintain U.S. household income at full force, or at worst knock out much of the expected rebound in third-quarter consumer spending.
The most likely outcome is a $400-per-week extra federal unemployment benefit, a compromise between Democrat’s proposal of maintaining $600 weekly benefit and a Republican proposal of paying $200 per week for another two months before states come up with ways to match 70% of workers’ prior earnings, according to Bloomberg Economics.
That would be sufficient to keep household income around pre-pandemic levels while also alleviating concerns about the disincentive to work, Bloomberg economist Andrew Husby said in a report. An agreement on a $400 add-on would also be consistent with Bloomberg Economics’ base case for annualized third-quarter GDP growth at 17%.
In the unlikely event of no extension at all, a loss of the full $600 benefit would be the equivalent of erasing the average wage income of over 15 million Americans, or knocking out much of the expected 20% rebound in consumer spending in the third quarter, based on calculations by Bloomberg Economics.
Extra aid for as many as 30 million jobless Americans ran out as of Friday, and Democrats and Republicans are still far from any deal. White House Chief of Staff Mark Meadows and Treasury Secretary Steven Mnuchin met Saturday with Senate Democratic leader Chuck Schumer and House Speaker Nancy Pelosi; talks will continue at a staff level all weekend.
A White House official said there are about a dozen issues that have to be resolved for any final deal. Roadblocks include Senate Majority Leader Mitch McConnell’s plan to shield employers against lawsuits stemming from Covid-19 infections, and Democrats’ drive to provide $1 trillion in aid to state and local governments.
Maintaining aggregate personal income at pre-pandemic levels won’t solve problems for all households. Federal eviction protections expired on July 24. According to Census Bureau data, 24 million Americans say they have little to no confidence in meeting their next rent payment.
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