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Hundreds of unemployed Kentucky residents wait in long lines outside the Kentucky Career Center for help with their unemployment claims on June 19, 2020, in Frankfort. Photo: John Sommers II/Getty Images

Congress' failure to renew enhanced unemployment measures at the end of July is already showing up in consumer spending patterns, holding down retail purchases and foot traffic, economists at Deutsche Bank say.

What happened: The reduced spending aligns with the expiration of the Federal Pandemic Unemployment Compensation benefits, which provided an additional $600 per week to qualifying unemployed individuals.

  • By mid-June spending by lower-income households had normalized, outpacing spending recoveries for middle- and higher-income consumers thanks to the unemployment benefits, the economists noted.
  • But by the end of the month, consumer spending fell more for lower-income households than others, "no doubt impacted by the sharp decline in unemployment benefits."

Why it matters: "The evaporation of these benefits highlights near-term downside risks to consumer spending, particularly for lower-income households, which have been a critical engine of the recovery despite being disproportionately more likely to lose a job during the pandemic — a testament to the effectiveness of the income supplement."

Major key: Google mobility data indicate that since the end of July foot traffic around retail has declined by more in states that were more likely to be affected negatively by the expiration of unemployment benefits.

Between the lines: Despite President Trump's executive memo extending $400 a week (now looking more like $300/week) in unemployment benefits, "legal, administrative and fiscal uncertainty remains."

A recent study published by the National Bureau of Economic Research found that eliminating the enhanced unemployment benefits would lead to a 44% decline in local spending.

  • Cutting it to $200 would mean a 28% decline in spending.
  • Reducing to $400 would cut spending by 12%.

Go deeper

Felix Salmon, author of Capital
Nov 5, 2020 - Politics & Policy

Government gridlock would be the worst-case economic scenario

Illustration: Sarah Grillo/Axios

Economically, the outcome of the election could not be worse than where we seem to be headed: A Biden presidency with a Republican Senate.

Why it matters: "Gridlock" — where the president's party doesn't control both houses of Congress — is being cheered by financial markets wary of political overreach. Stocks are not the economy, however. In the depths of a global pandemic, fiscal boldness is exactly what's needed for the economy as a whole. The problem is that political obstructionism is all but certain.

18 mins ago - Axios on HBO

Preview: "Axios on HBO" interviews White House Senior Advisor Cedric Richmond

On the next episode of "Axios on HBO," Axios co-founder Mike Allen interviews White House Senior Advisor Cedric Richmond.

  • Catch the full interview and much more on Sunday, February 28 at 6 pm. ET/PT on all HBO platforms.
1 hour ago - World

Italy tightens COVID restrictions as experts warn of growing prevalence of variants

Health workers prepare vaccine doses in Iseo, Italy. Photo: Stefano Nicoli/NurPhoto via Getty Images

Italy on Saturday announced it was tightening restrictions in five of the country's 20 regions in an effort curb the spread of the coronavirus.

Driving the news: The announcement comes as health experts and scientists warn of the more transmissible coronavirus variants, per Reuters.