Up to 15 million Americans face a devastating loss of pandemic stimulus 'the day after Christmas'
Another fiscal cliff looms for millions of unemployed Americans.
The Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs will expire at the end of 2020 and will leave around 15 million unemployed people without unemployment benefits unless Congress intervenes.
"You are really seeing a big black and white shift from very aggressive aid to the unemployed to almost nothing in a matter of months," Andrew Stettner, unemployment insurance expert and senior fellow at the Century Foundation, told Yahoo Money. "It's just a really out of date and very disastrous situation to let these benefits run out the day after Christmas."
Read More: Here's What You Need To Know About Eligibility for Unemployment Benefit
The phasing out of these benefits, along with the depleted savings of unemployed Americans, could significantly reduce consumer spending and slow economic recovery.
People receive groceries at the Thessaloniki Christian Church during a distribution site on October 17, 2020 in New York City. The Bronx, a neighborhood that has long struggled with poverty and neglect, has been particularly hard hit by the COVID-19 pandemic. (Photo by Spencer Platt / Getty Images)
"We look out for unemployment insurance when there is a recession"
Currently 9.4 million workers rely on PUA, which provides unemployment benefits to contractors, self-employed and other workers - all of which receive their last payment on December 26 or 27.
Another 6 million, according to estimates by Ernie Tedeschi, managing director and political economist at Evercore ISI, will lose their entitlement to PEUC at the end of the year. PEUC offers an additional 13 weeks of benefits once unemployed people get what their state normally offers - around 26 weeks of benefits. 4 million people are currently receiving PEUC, but more people are relying on it every week.
"Think of PEUC as a shadow of the layoffs we had earlier in the pandemic," Tedeschi told Yahoo Money. "All the people who were made redundant in March and April - by chance six months ago - are exhausting their government benefits and joining PEUC."
Some of the PEUC employees may be able to switch to Extended Benefits (EB), a federal program that provides an additional 13 weeks. However, this program is also running out in many states as the unemployment rate is falling.
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The phasing out of the PUA and PEUC would be the third financial cliff that unemployed Americans face: first, the phasing out of the additional $ 600 weekly unemployment benefit under the CARES Act in July, and second, the phasing out of the additional $ 300 under the LWA -Assistance (Lost Wages Assistance) program in September.
Read more: How long does your unemployment benefit last?
This is because unemployment claims remain high, with over 700,000 Americans filing for unemployment benefits for the first time in the past week.
"What usually happens is we look out for unemployment insurance during a recession," Michele Evermore, senior policy analyst with the National Employment Law Project, told Yahoo Money. "Then when it's over, most people come back to their lives and stop paying attention to unemployment."
"The recovery is losing even more momentum"
While some unemployed Americans have survived on accumulated savings in the past few weeks, most of that extra money will be gone by mid-December, when further incentives are stopped, according to an analysis by Evercore ISI.
According to a study by the JPMorgan Chase Institute, the unemployed more than doubled their cash savings between March and July, but two-thirds blew those accumulated savings in August alone.
"The unemployed wisely and prudently saved some of their benefits all year round," said Tedeschi. "These workers will have largely exhausted the savings they had by December."
They also held back their spending, according to a study by the JPMorgan Chase Institute, seeing a 14% decrease in August after increasing 22% when the unemployed received those $ 600 additional benefits.
Read more: Do you have to pay taxes on unemployment benefits?
Spending fell 6.4% in early November, after falling just 3.5% in mid-October, according to data from Opportunity Insights and JPMorgan Chase. This trend is expected to continue until the end of 2020 and accelerate even further in early 2021, according to Tedeschi, which will weigh on the economic recovery.
"It is very likely that the United States will continue to grow after these programs expire," said Tedeschi. But "I would expect it to grow more slowly and for the recovery to lose even more momentum."
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova.
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