Markets

4 Reasons Why August Could Be the Bleakest Month of This Recession Yet

The U.S. economy has been in poor shape for months. Since March, tens of millions of Americans have lost their jobs, more than 100,000 small businesses have closed permanently, and countless individuals have had their lives and finances disrupted. Unfortunately, the worst may be yet to come -- soon. Here are four reasons why August could be the direst month of the coronavirus recession yet.

1. Enhanced unemployment benefits are set to run out July 31

In March, the CARES Act was enacted, and one of the stimulus package's most important features was to boost unemployment benefits by $600 a week. As such, the average recipient is now getting $980 a week -- which, for the average out-of-work American, replaces their lost paychecks in full. Some lower-wage workers, in fact, are in better shape financially on unemployment. And while conservative lawmakers have argued that people shouldn't be coming out ahead from losing their jobs, providing those tens of millions of unemployed Americans with extra funds each week has also helped keep the U.S. economy from spiraling into an even worse recession.

Seated man with sad expression resting head against his hands

Image source: Getty Images.

But that $600 weekly boost came with a time limit, and if the House and Senate can't agree on a plan to extend it, it will run out in late July. Republican lawmakers argue that the jobless rate fell in May and June compared to where it stood in April, and assert that means the enhanced benefit is no longer needed. They also suggest it's discouraging some people from going back to work. The counterargument is that the current official unemployment rate of 11.1% is still ugly -- higher, in fact, than it was in the worst month of the Great Recession -- and the official figures are almost certainly under-counting the unemployed.

If the $600 weekly additions to unemployment payments do indeed disappear in August, the average American on unemployment will begin collecting just $380 a week. Many won't manage to make ends meet in that scenario, which means a lot of people will accrue costly debt, fall behind on their bills, and stop pumping money into the economy at a time when more consumer spending is vitally necessary to keep businesses afloat and the still-working employed.

2. A second stimulus check may not be in the cards

Many Americans are banking on a second stimulus check to follow the first round of $1,200 per adult payments that went out under the CARES Act. But some lawmakers have been hesitant to commit to another round, and while there's no specific deadline for a decision on that score, it's extremely likely that the topic will be raised in the Senate when it reconvenes in late July. If that body's deliberations on the direct stimulus front don't lead to another large round of checks, however, it won't just be bad for morale -- it could also cause a lot of people to rethink their spending.

The result? Many, many businesses, from mom-and-pop shops to giant companies, could be in for a drastic drop in revenue as consumers rein in their spending. That, in turn, would likely drive even more smaller operations out of business for good.

3. Many states may have to go back to square one with lockdown measures

By this point in the pandemic, many health experts had hoped the U.S. would have made major progress on stemming and containing COVID-19. Instead, the numbers of daily new cases are surging to their worst levels by far in hot spots across the country, with no signs of a peak on the horizon. As more state governments find themselves compelled to reimpose tighter restrictions, many areas of the country may by the end of August find themselves back in lockdown conditions resembling those in effect in March and April, when this entire mess started. And that alone could lead to a sharp upsurge in unemployment.

4. The stock market may start to reflect reality

Despite the steep market crash in February and March, stocks have rebounded nicely -- so much so that if you were to take a look at the average portfolio today, you almost wouldn't know we were in a recession. But if the COVID-19 crisis continues to worsen, unemployment climbs, and traders lose their optimism about the speed at which business will return to something resembling the old normal, the market could react in a very unfavorable way, sending stock values plummeting once again.

At a time when the news is overwhelmingly bleak, it pays to be optimistic about the economy. But it's also hard to ignore the risks the country faces as July draws to a close. Unless the stars align in an extremely lucky way, August could end up being the hardest month of 2020 yet for Americans. Let's all brace for that possibility while trying somehow to hope for the best.

10 stocks we like better than Walmart
When investing geniuses David and Tom Gardner have an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 2/1/20

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More