Stimulus Update: Despite Recession Fears, Unemployment Claims Keep Dropping

While economic conditions could worsen, right now, things aren't looking bad at all.

There's a reason so many financial experts have been warning about a potential recession. Inflation is soaring, and in August, it rose slightly over July's levels when the opposite was expected to happen.

The Federal Reserve is doing its best to slow down the pace of inflation by implementing interest rate hikes. By making it more expensive to borrow, the Fed is hoping to encourage consumers to start spending less. As that happens, supply will get a chance to catch up to demand so that prices can start to come down.

But the Fed may end up going overboard. And if that happens and consumer spending declines to a drastic degree, it could spur a widespread economic downturn that leads to rampant unemployment.

Now if a recession were to hit, there's a chance lawmakers would make the decision to send a round of stimulus checks into Americans' bank accounts. After all, it's a strategy that's been used before to help the economy bust out of a slump.

But while a near-term recession is possible, right now, the U.S. labor market seems to be telling a very different story. And while that's something workers should take comfort in, it might also be a blow to those who are still holding out hope for a near-term stimulus check round.

Jobless claims keep dropping

For the week ended Sept. 10, jobless claims fell to 213,000. That represents five consecutive weeks of decline on the unemployment front. In fact, new jobless claims actually just reached a new three-month low.

From an economic standpoint, that's a good thing. Low levels of unemployment are indicative of a strong economy.

But from a stimulus standpoint, low levels of unemployment virtually wipe out Americans' chances of getting a round of federal aid. And that's understandable -- why would the government spend money on stimulus checks when unemployment levels are low and jobs are abundant?

Furthermore, while some might make the case that Americans need stimulus aid to fight inflation, we can also make the case that stimulus aid led to rampant inflation in the first place. Last year, Americans were flush with cash between stimulus checks and a boosted Child Tax Credit, so they upped their spending at a time when supply chains were slowed down. If a stimulus round were to go out before the end of the year, it might only make inflation worse.

What's in store for 2023?

While we can say with certainty that today's labor market is strong, we can't discount the possibility of things changing in the coming year. And some companies have already indicated plans to slow down on hiring.

But for now, it's really hard to argue that the current economic situation warrants a stimulus round. And that's something Americans will have to come to terms with.

The good news is that some states have been taking stimulus matters into their own hands by sharing excess funds in their budgets. But those who don't qualify for a state stimulus check will have to find other ways to stretch their paychecks until inflation settles down.