The U.S. economy faces a serious crisis without unemployment benefits
Bradley Blankenship
A closed store during the COVID-19 in Chicago, April 30, 2020. Layoffs are declining and hiring is slowly picking up, yet it's not really clear where the job market goes next. /AP

A closed store during the COVID-19 in Chicago, April 30, 2020. Layoffs are declining and hiring is slowly picking up, yet it's not really clear where the job market goes next. /AP

Editor's note: Bradley Blankenship is a Prague-based American journalist, political analyst and freelance reporter. The article reflects the author's opinions, not necessarily the views of CGTN.

Federal Reserve Chairman Jerome Powell told the Senate Banking Committee on Tuesday that the U.S. economy faces an uncertain path to recovery. According to Powell, the U.S. is entering a period of improvement in employment but that the labor market will inevitably fall "well short" of pre-pandemic levels. This sobering testimony before the Senate flies directly in the face of U.S. President Donald Trump's optimism in recent days.

"Recently, some indicators have pointed to stabilization and in some areas a modest rebound, in economic activity," Powell said during his opening statement before the Senate.

"That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery," he added.

Powell's remarks urge caution to those that might be overly-optimistic about recent economic data. For example, on that same Tuesday the Department of Commerce reported a record surge in U.S. retail sales in the month of May – a figure that was very unexpected and immediately seized on by Trump. Retail sales jumped by 17.7 percent following a 14.7-percent fall in April. 

A U.S. Bureau of Labor Statistic report from June 5 also reported strong growth. According to their data, total non-farm employment rose by 2.5 million in the month of May and the unemployed rate actually declined to 13.3 percent.

While these figures are certainly better than what they were before, and better than what most expected would be the case, they are certainly not good by any means. Such levels of unemployment are at near-depression levels and will no doubt create cascading problems for the long-term if left unchecked.

Powell illustrated two important points: that a slow economic recovery, which is what's forecast, will destroy small and medium-sized businesses and that the effects of the COVID-19 economic fallout are already driving inequality in the country.

Small businesses make up, by far, the largest share of businesses in the U.S. and employ nearly half of the country's workforce. Most of these businesses lacked the liquidity to weather a temporary interruption of economic activity and small business relief was initially dysfunctional.

The federal government has course-corrected and turned the emergency small business lending program, the so-called Paycheck Protection Program (PPP), into a cornerstone of its response to the COVID-19 aftershock. However, many of the jobs already lost may not come back – at least not anytime soon. It's for this reason that aid to the unemployed will be very crucial in the time ahead as the average American faces unprecedented struggles.

A man writes information in front of Illinois Department of Employment Security in Chicago, April 30, 2020. /AP

A man writes information in front of Illinois Department of Employment Security in Chicago, April 30, 2020. /AP

Before the pandemic, household debt in the U.S. was at a record high of 14.3 trillion U.S. dollars during the first quarter of 2020, breaking the previous peak of 12.7 trillion U.S. dollars reached in 2008. One of the largest debt crises in the country – student loan debt – has seen forbearance at 0 percent interest until October which will mitigate much of the burden on borrowers, but is likely to see huge problems after that as unemployment will remain relatively high.

The largest pool of household debt, namely home loans, has seen startling figures. By the end of April, approximately 7.3 percent of homeowners were in forbearance agreements – meaning people were unable to pay their mortgages. This downward trend has been slightly mitigated according to data from June 5, although this is expected with the reopening of the economy. Still, 8.9 percent of mortgages are currently in forbearance which is better in terms of the downward trend, but not good.

Renters – who are disproportionately workers in the service sector that has been decimated by COVID-19 – are facing a housing "apocalypse" that has compounded an already serious crisis since before the pandemic, according to experts. The Urban Institute reported that between March 25 and April 10, nearly half of renters aged 18 to 64 struggled to pay rent or utilities faced food insecurity or couldn't afford medical treatment. With rent moratoriums being lifted this month in many parts of the country, a huge number of Americans face eviction.

Federal Reserve Chairman Powell, though avoiding a hat in the political ring, gingerly admitted that data suggests that governments do play a role in the economy as has been shown in the past. He also noted that relief to working people, something Congress is dragging its feet on, would mitigate the economic disaster to an extent.

For example, an additional 600 U.S. dollars a week in unemployment insurance guaranteed under the CARES Act passed in March is set to end at the end of July which will put millions of now-unemployed workers, many of whom are likely to remain unemployed for some time, at serious risk.

Congress, especially Republicans, has shown little interest in extending these benefits, citing a non-existent "disincentive to work" that ignores the reality of widespread joblessness. If not extended, unemployment benefits will be left up to states, many of which pay unlivable benefits already and are facing their own budget crises.

While new economic figures are unexpectedly positive, it should be remembered that the figures as they now stand are still bad by any account and unlikely to fully rebound soon. The U.S. economy is expected to shrink significantly and unemployment is projected to be high into 2021.

In order to mitigate further downstream effects of the economic interruption and save Trump's "greatest economy in the world," Congress must do the previously unthinkable and provide aid to workers as well as to state governments during the duration of the COVID-19 aftershock. Not doing so would create a far more serious problem in the long-term.

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