Why the US Economy Needs More Stimulus Very Soon

There’s a lot of debate in the US Congress over whether the US economy needs more stimulus—and if it does, how big the stimulus has to be. But a closer look at personal income numbers doesn’t leave much room for discussion. More stimulus is very much needed—and soon.

The COVID-19 crisis has left roughly 14 million people still out of work—nearly 10% of the total number of people employed before the crisis. The labor market has started to improve as the economy has gradually reopened, but there’s still a mountain to climb before things get back to normal. This means continued government support is necessary to keep households solvent and the US economy on the path to eventual recovery.

Household income has held steady to this point but only because of transfer payments—in the form of stimulus checks and enhanced unemployment benefits from the government. These payments have replaced the income lost from households hurt by unemployment, but enhanced unemployment benefits expired at the end of July.

Until the labor market improves enough to put nearly 10% of the labor force back to work, the household sector and the overall economy will still need heavy government support.

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Authors
Matthew D. Palazzolo
Senior Investment Strategist—National Director, Investment Insights

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time.

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