Here's how the abrupt end of the $600 federal unemployment benefit will wreak havoc on jobless Americans
- The lapse of the $600 federal unemployment benefit will prompt a drastic reduction in household spending, experts say.
- Unemployed people are much likelier to miss credit card and rent payments, as well as utility bills.
- Trevon Logan, an economics professor at Ohio State University, said people missing payments can also rack up fines and other fees.
With the expiration of the $600 federal supplement last week, millions of jobless Americans are now collecting only state unemployment benefits. It's a safety net that usually makes up for only half of their lost earnings.
That development is leading economists to warn of a sharp pullback in household spending, a key driver of recovery that has already shown signs of stalling out. They credit the enhanced unemployment benefits with keeping people afloat during the pandemic.
Jobless people spent that money on grocery shopping, credit card bills, and rent payments among other forms of spending, experts say. Now the abrupt lapse in benefits will force many to cut back and lapse on their payments.
"People will be much more likely to miss rent payments than they were, " Trevon Logan, an economics professor at Ohio State University, told Business Insider. "The problem with this is we don't have the moratorium on evictions. So we could face a circumstance in which people are more likely to be evicted from their homes."
Logan added that many states are ending their moratoriums on utility shutoffs, which allowed people to keep their electricity even if they hadn't paid their monthly bills.
The Washington Post reported that a dozen states — including Pennsylvania, Virginia, and North Carolina — are scheduled to end their moratoriums by early September, putting people at higher risk of losing their electricity.
Credit card debt fell in the US over spring, even as the economy spiraled into a recession and millions of people were laid off. Now, with the lapsed benefits, people are likelier to miss making those payments, Logan said, accumulating fines or fees in the process.
It'll damage credit scores and set back unemployed people's odds of getting a job once the economy is in better shape.
In March, Congress approved a $600 federal supplement to state unemployment payouts. But those benefits expired on July 31 with Democrats and Republicans fiercely divided over the amount it should be replaced with.
Democrats are seeking to revive the payments through January, while the GOP unveiled a plan to cut benefits to $200 for two months and then implement a 70% wage replacement system. However, some experts say state agencies are woefully unprepared for the task.
Restoring those benefits at the $200 level could still damage the economy. One study from the left-leaning Economic Policy Institute indicated that cutting back to $200 per week would shed 3.4 million jobs from the economy.
Meanwhile, around 31 million people relying on unemployment benefits have to make ends meet on drastically reduced incomes. That number is still climbing.
For the week ending Saturday, 1.2 million people filed unemployment claims, the 20th straight week of claims above a million.