Jobless rate rises to 1.4M as an extra $600 unemployment bonus could not have expired at a better time. Last week, another 1.4 million U.S. workers filed for unemployment insurance. This is the first time in three months that the jobless rate exceeded the previous week. It’s also the 18th straight week with more than 1 million weekly jobless claims. Pre-pandemic, the old record stood at 695,000 in 1982.
The 1.4 million jobless filings exceeded estimates by 100,000. Since the year started, unemployment claims have totaled almost 53 million. This already exceeds the 37 million record made during the Great Recession of 2007-2009.
News of the rise in unemployment shook the market. After riding high for weeks, the S&P 500 recorded its worst loss this month. Traders have started buying safe-haven investments, including pushing gold to record prices.
Related Article: As Benefits Expire, Millions Of Americans Facing Financial Hardship
Rising Coronavirus Cases Are Hampering Business
The rising numbers can mean more businesses are holding back on reopening. Last Thursday, the US reported its 4th million coronavirus case. While it took the country 98 days to reach a million cases, the jump from three to four million took only 16 days. The average number of new cases is above 60,000, which is the highest rate in the world.
Relief is still is nowhere in sight. As of last week, the total number of Americans receiving unemployment is 16.2 million. The continued rise in infections has complicated reopening plans across the nation. More than half of the States have implemented a mask policy to help control outbreaks.
While things seem to go from bad to worse, American businesses are in limbo. To control the virus, they should shut down and delay reopening until things improve. But doing so risks damaging the economy further as businesses stagnate.
Slower Economic Growth
A Reuters poll made on July 13-22 reflects the dark days ahead. The economy contracted 33.8% during the second quarter, and there are no signs of letting up. Economists polled scaled their growth prospects from 18.5% for 3Q and 8.0% for 4Q down to 17.8% and 6.5% respective.
David Mericle, the chief U.S. economist at Goldman Sachs, sees two risks. The first risk was that “Some states might need to shut down more consumer activity to get the virus under control.” The second risk was the effect of the first one. He noted that “the stall in the reopening process might cause longer-term damage to businesses and the labor market.” Goldman Sachs lowered their Q3 forecast from 33% to 25%, owing to the worsening conditions. Other banks are expected to follow suit.
The CARES Act contains a provision that gives $600/week to workers displaced by the pandemic. This benefit is on top of the regular benefits received by laid-off workers. With this provision set to expire on July 31, many Americans worry about staying afloat.
With no signs of the outbreak slowing down, employment prospects are dim.
Republicans and Democrats are currently deliberating on the provisions of another stimulus package. Both parties have agreed to continue the $1,200 stimulus check, much to the relief of everybody. In a Fortune survey, last July 17-21, 80% of Americans want a second round of stimulus checks. This is 24% higher than the previous survey conducted last May.
Details on the unemployment benefit are still contested. Republicans want to remove or lower the amount, saying it discourages people to get back to work. Their latest proposal is to replace $600 with an amount equal to 70% of a worker’s previous income. Democrats are far more generous, insisting on extending the $600 benefit until January.
With about a week to go before July 31, Americans worry about the next few weeks. What happens to laid-off workers between Aug 1 to the day the new stimulus package gets approved? Texas in particular is bracing for the effects. A state law quirk requires a full week to qualify for unemployment payment. With July 31 falling on a Friday and a Texas workweek defined as Sunday to Saturday, workers are short a day next week. Unless Congress passes a retroactive bill before July 31, Texas will receive the ax first. Three million unemployed Texans will receive their last $600 check this Saturday.
With unemployment rising along with Covid-19 cases, Americans await a second stimulus package. The prospect of expiring benefits adds a hint of suspense to an already touchy situation. Congress needs to pass a new measure, or it faces a horde of angry Texans first, then the rest of Americans after.
Watch this video as jobless rate rises to 1.4M as extra $600 benefit expires next week: