Economist: 'It’s absolutely critical' that extra unemployment benefits are extended by Congress

As the U.S. continues to battle the coronavirus pandemic, with cases surging in the south and west, one deadline is keeping economists awake at night.

Americans who are currently out of work get an extra $600 per week in unemployment benefits, on top of what their state provides, to buttress their finances during the pandemic. But that federal coronavirus unemployment insurance is set to expire at the end of July.

Read more: How to file for unemployment insurance

While lawmakers in Washington, D.C., remain divided over whether the benefits should be extended into early 2021, one economist said not doing so would hurt the economy badly.


“It's absolutely critical that does not vanish and go away,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, told Yahoo Finance’s The Final Round (video above). “What we've seen in the past month is retail sales … was actually very strong. There's very compelling evidence that that was supported by both a stimulus check and the unemployment.”

A man sleeps in front of closed shopfronts in what would be a normally busy fashion district in Los Angeles, California on May 4, 2020. - California governor Gavin Newsom earlier today announced the gradual reopening of the state later this week as dismal US employment figures are expected with the release of figures Friday May 8 for April's US jobs report, as 30 million Americans filed for unemployment in the last six weeks. (Photo by Frederic J. BROWN / AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)
A man sleeps in front of closed shopfronts in what would be a normally busy fashion district in Los Angeles, California on May 4, 2020. (Photo by FREDERIC J. BROWN/AFP via Getty Images)

And “if that goes away, I think you're taking away a critical income support,” he added, especially since many state budgets are likely to be strained, on top of small businesses’ financial woes.

‘The risks are rising’

On Thursday, the jobs report showed that the U.S. economy added 4.8 million jobs in June, and the unemployment rate stood at 11.1%, suggesting a faster-than-expected rebound, some economists said.

But at the same time, millions were still out of work, according to the weekly jobless claims numbers. For the week ending June 27, an additional 1.427 million Americans filed for unemployment benefits, which exceeded the consensus expectations of 1.35 million.

(GRAPHIC: Deutsche Bank)
(GRAPHIC: Deutsche Bank)

“To avoid a significant decline in consumer spending once the $600 bonus expires, either the economy will have to create a lot of jobs very quickly or we need more fiscal support,” said Torsten Slok, chief economist at Deutsche Bank Securities. “In short, the risks are rising that in August we could see a decline in consumer spending and in households’ ability to pay their credit cards, auto loans, rent, and mortgages…”

Aarthi Swaminathan is a reporter for Yahoo Finance.

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