Economic Recovery Could be in Trouble from Unemployment and Stunted Income

The United States appears to be healing economically, with the Dow Jones Industrial Average (NYSE: DIA) jumping almost 500 points during trading on Monday, and most other indices showing substantial recovery. Investor confidence may be separated from reality, however, as unemployment figures remain daunting and uncertainty over whether consumers will have the spending power to support further recovery becomes more prominent.

Monday was a banner day for the top U.S. stock market indices. The Dow rose 1.8% during trading, ending the day 449 points up from the beginning of trading. The S&P 500 Index (NYSE: SPY) jumped by 1.2%, coming up a respectable 35 points, while the Nasdaq Composite Index (NYSE: IXIC) came up 1.1% for a 104 point gain. Tech stocks made the most significant moves, helping the Nasdaq make its gains and bring it to a substantial 9% gain year-over-date.

Investor confidence, which has driven Wall Street's resurgence as of late, is mostly motivated by the reopening of the U.S. economy and fiscal stimulus measures that restored consumer spending power amid mass unemployment and stunted income. Investor confidence doesn't seem to be in tune with reality; however, as the U.S. economy is still very much under threat. Economic recovery, as recent trends would indicate, is finicky; with every bad headline of COVID-19 resurgence in the United States, major indices take a hit.

Paramount of the threats facing the economy's recovery is unemployment, which remains considerably dour despite optimism about economic recovery. The employment-population ratio dropped to 52.8% in May, which means that just under half of the adult population of the United States is still out of work. Many unemployed Americans are victims of coronavirus related furloughs and layoffs; a problem made worse by the lack of available employment as any companies downsize amid pandemic-related losses.

To make matters worse, the lack of effective action by the federal government and many state governments, alongside the too-soon reopening of the economy despite a lack of meaningful progress in COVID-19 cases, has led to a massive resurgence in coronavirus cases. Over 40,000 new cases per day are being reported in the United States recently, an all-time peak for the nation. In response, many states have begun re-implementing lockdown measures, which would lessen the amount of available employment while also making it difficult for many companies to make meaningful revenue.

Only adding to the growing danger of another economic tumble is the looming expiration of the pandemic-related unemployment relief, which has provided unemployed Americans with an extra $600 a week in addition to regular unemployment. Many Americans are still out of work, and even those that have returned to work still do not make living wages. For many Americans, the $600 bonus provided spending power they did not previously have, allowing them to make more purchases from local businesses and keep on bill payments. Removing the benefit could stand to remove a great deal of spending power from many at-risk Americans, which in turn would dramatically reduce overall consumer spending as many workers tighten their belts to deal with the loss of income.

The combination of factors leads to a dismal scenario where out-of-work and low-paid Americans lose a great deal of spending power and are unable to contribute to economic recovery, which will, in turn, reduce available jobs due to continuing downsizing and furloughs.