The next big hit to the economy?

Posted: July 12, 2011 in Economics, US News
Tags: , ,

Zachary Roth
The Lookout
July 12, 2011

The recovery is weak now–but it could be headed for a major hit that will leave it even weaker.

At the start of 2012, the extended unemployment benefits approved by Congress in December 2010, which cover a maximum of 99 weeks per person, will expire. Though the benefits are hardly lavish–a little more than $300 a week for most recipients–their total impact on the economy is huge, because so many Americans are currently taking advantage of them. Moody’s Analytics estimates that when the benefits expire, $37 billion will be taken out of the economy, the New York Times reports. That’s enough to exert a significant slowing effect–at a time when the recovery is already a long way from robust.

Government benefits that go to poorer Americans, like unemployment insurance, tend to boost consumer spending more than other kinds of stimulus, because people living paycheck to paycheck have little choice but to spend the money, rather than saving it. So the disappearance of jobless benefits will take money out of circulation when economic growth is seeking to gain some traction.

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