Tags: Economy | 37 Billion | Jolt | Benefits | end | us | economy

US Economy Braces for $37 Billion Jolt When Some Benefits Run Out

Monday, 11 Jul 2011 02:38 PM

The U.S. government is supplying about 20 percent of Americans' personal income through a variety of channels, including jobless benefits, food stamps, Social Security and disability, according to an analysis conducted by Moody’s Analytics.

That figure rises in states hit harder by the recession, including Arizona, Florida, Michigan and Ohio, according to the study, the New York Times reports.

A lot of that government money is going to dry up as extended benefits will run their course, which means about $37 billion less will flow into the wallets of many citizens this year.

So pray the job market recovers soon, or consumer spending will continue to lag on the overall economy, economists say.

"If we don't get more job growth and gains in wages and salaries, then consumers just aren't going to have the firepower to spend, and the economy is going to weaken," says Mark Zandi, chief economist of Moody’s Analytics, a macroeconomic consulting firm, the Times reports.

The problem, experts say, is that when the government can no longer prop up incomes — and the economy — with benefits, then economic activity contracts anew, and the country ends up right back where it started: growing sluggishly with high unemployment rates.

Total government benefit payments rose to $2.3 trillion in 2010, from $1.7 trillion in 2007, an increase of about 35 percent, according to a New York Times analysis.

While a lot of that money went to programs already in existence, such as food stamps, a big chunk went to fund emergency programs, such as the one that extended unemployment benefits.

Many of those programs are scheduled to end and with them, so will the economic growth rates they artificially pumped up.

Consumer spending accounts for the bulk of U.S. economic activity, as much as 70 percent in the past, although consumers are reluctant to loosen family purse strings until they feel more secure about the economy — and their jobs.

Furthermore, benefit money tends to hit the economy immediately, as once a family receives some sort of assistance, they spend it on food or other such necessity that cannot wait.

That means once it stops, the economy will feel it quickly.

"In a study for the Labor Department, Wayne Vroman, an economist at the Urban Institute, estimated that every $1 paid in jobless benefits generated as much as $2 in the economy," the New York Times says.

Retailers just want consumer spending to increase, warning that the economic recovery may fade if not.

"Regardless of why people have less money to spend, it affects all retailers in all industries," says Michael Siemienas, spokesman for SuperValu, which operates grocery chains including Cub Foods, Shop ’n Save and Save-A-Lot, the Times reports.

The number of SuperValu's customers using electronic benefit transfers to pay bills had grown over the last year, Siemienas adds.

Employers added 18,000 new jobs in June, which was way below expectations and sparked fears that the U.S. economy remains stuck in the doldrums.

The unemployment rate hit 9.2 percent in June, up from 9.1 percent in May and 9.0 percent in April.

The economy needs to gain steam.

If it doesn't, labor uncertainty might keep consumers from spending, which will in turn keep companies from hiring and possibly fuel a vicious cycle.

"We really do need to see some signs that economic growth is picking up in the near future," says Goldman Sachs economist Andrew Tilton, according to The Wall Street Journal. "The pressure is on."

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The U.S. government is supplying about 20 percent of Americans' personal income through a variety of channels, including jobless benefits, food stamps, Social Security and disability, according to an analysis conducted by Moody s Analytics. That figure rises in states hit...
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