Stimulus Update: The Link Between Unemployment and Stimulus Checks

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KEY POINTS

  • It's been over a year since Americans received a federal stimulus.
  • Because the job market is strong, a near-term round is unlikely.


Many Americans want another stimulus check, but the labor market doesn't warrant one.

When the American Rescue Plan was signed into law back in March of 2021, the U.S. economy was not in great shape. Not only were millions of Americans still out of work, but COVID-19 vaccine availability was limited to higher-risk individuals only. That put a lot of people in a position where they couldn't seek out work even if they wanted to due to health concerns.

In early 2021, it was easy to justify the $1,400 stimulus checks that hit Americans' bank accounts. But these days, the labor market is in far better shape. And while many consumers may be struggling with higher living costs, that alone likely won't warrant a round of additional federal stimulus funds.

The jobless rate has fallen substantially

In March of 2021, the national jobless rate sat at 6%. Now compared to April of 2020, when it sat at 14.7%, that was a big improvement. But compared to pre-pandemic levels, it was high.

Meanwhile, in March of 2022, the U.S. jobless rate was a mere 3.6%. That's basically in line with what the national unemployment rate looked like before the COVID-19 crisis (in February of 2020, unemployment sat at 3.5%).

Because the U.S. economy is in far better shape from an unemployment standpoint, it's difficult to justify another stimulus check right now. In fact, to some degree, a stimulus round could make inflation even worse.

A big reason living costs are soaring right now is that the demand for goods exceeds the available supply. And a big reason consumer demand is up is because more people are employed and therefore have money to spend. If lawmakers were to pump even more money into the economy with a fourth stimulus round, it could create an even larger supply-demand imbalance.

When will living costs become more manageable?

Unfortunately, we could be in for a number of months of rampant inflation before living costs start to settle. One thing that needs to happen is that supply chains, which are still somewhat bottlenecked, have to unclog and ramp up. Once goods become more easily available, demand should wane and prices should stop climbing. But until then, consumers who are living paycheck to paycheck with no money in savings to fall back on might struggle.

The good news is that job opportunities are ample, so those needing an income boost may be able to get one by picking up a second gig. But that's not an easy solution for everyone, and so it's easy to see why so many Americans are frustrated over a lack of federal aid at a time when people are having difficulty making ends meet.

That said, while there are no plans to dish out another round of federal aid anytime soon, some states are sending out payments to residents due to budgetary surpluses. It pays to see if your state has plans to issue a rebate that could serve as a nice payday in the not-so-distant future.

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