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Here in the U.S., Congress is still trying to come up with a deal on a coronavirus relief package, which could include some form of supplemental unemployment benefits. NPR's Scott Horsley reports that new research out there shows those unemployment benefits have helped prop up the economy.
SCOTT HORSLEY, BYLINE: Ordinarily, when people lose their job, they spend less money, but something unusual happened this spring when tens of millions of people were suddenly thrown out of work by the pandemic. At first, their spending did go down, just as you'd expect. But the story took a turn once people started to receive unemployment benefits, which the federal government had boosted by $600 a week.
NICHOLAS MANCUSO: A big difference - a really big difference.
HORSLEY: Nicholas Mancuso lives in Cobleskill, N.Y., about 45 miles west of Albany. He went two months with no income after losing his job at a metal fabrication plant in March. But once the unemployment benefits finally started flowing, Mancuso suddenly had more money to spend than he did when he was working.
MANCUSO: You just have a little bit more security. You feel a little bit more comfortable. You can pay your bills and still have money, you know? If you needed a pair of sneakers, you can go buy a pair of sneakers.
HORSLEY: Peter Ganong looked into these spending patterns, along with colleagues at the University of Chicago and the JPMorgan Chase Institute. They estimate for every dollar people receive in unemployment benefits, 73 cents is immediately spent. That's not only good for sneaker salesmen, but landlords and grocers as well.
PETER GANONG: Unemployment benefits have been absolutely transformative. It actually turns out that they're helping to sustain the U.S. economy as a whole.
HORSLEY: As of last week, though, the extra $600 in federal help has run out. Mancuso's weekly unemployment benefits suddenly dropped from $873 down to 273. He used the last of the extra federal money to cover this month's rent.
MANCUSO: If I had a $500 emergency right now, I'd be in trouble. If something happened to my car, I wouldn't be able to fix it.
HORSLEY: Multiply that uncertainty by the tens of millions of people who are still unemployed, and you could be left with an even bigger hole in the U.S. economy. Ganong says unless lawmakers agree to replace at least some of the extra $600 a week, the resulting drop in spending would be worse than adding another Great Recession on top of the downturn we're already in.
GANONG: The world of no supplement is the world where, on top of the pandemic, we experience the Great Recession all over again in terms of what happens to total spending in the economy.
HORSLEY: Unemployment benefits have also helped to keep families from sinking into debt. Forecasters expected to see a spike in credit card borrowing and delinquencies this spring, but, in fact, the opposite happened. Senior vice president Peter Maynard, who is with the credit reporting firm Equifax, says overall borrowing went down and late payments fell nearly 40%.
PETER MAYNARD: If you told me in mid-March that we'd have a decrease in consumer delinquencies, (laughter) I would've looked at you in a weird way.
HORSLEY: Maynard says jobless benefits aren't the only factor behind the unexpected improvement in household finances. There were also those $1,200 relief payments, which acted like an extra tax refund. And many people got a temporary break on their mortgage or student loan or were able to refinance at super-low interest rates.
Still, the extra unemployment benefits have been an important crutch for people like Nina Wurz. She's an apprentice carpenter in Seattle who was out of work for most of the spring. Construction's picking up, she says, but she wants to be careful and find a job site that feels safe.
NINA WURZ: Are they cleaning the bathrooms enough because we only have port-a-potties to use, right? I don't want to see people get sick. And I guess I'm just trying to protect myself.
HORSLEY: Wurz says when the extra jobless benefits were available, she didn't have to stress about paying her bills or drowning in debt.
WURZ: People aren't being lazy. It's not an incentive to blow off any responsibilities. It's what people need. People need it to survive.
HORSLEY: And that extra spending power may be what the U.S. economy needs to avoid tumbling into an even deeper recession.
Scott Horsley, NPR News, Washington.
(SOUNDBITE OF FREDDIE JOACHIM'S "RIVER") Transcript provided by NPR, Copyright NPR.
