Key Points

  • Stock markets around the world welcomed the COVID-19 fiscal stimulus programs; but now those programs are starting to expire.

  • If not extended or replaced, the fading support for the unemployed raises the risk of weakening economic momentum, turning the V-shaped recovery into a W.

  • As investors seem to be discovering with international stocks outperforming in recent weeks, there are very different implications for U.S. and European workers.

Stock markets around the world welcomed the COVID-19 fiscal stimulus programs; the passage of the CARES Act in the U.S. in late March coincided with the start of the market rebound. But now these programs are starting to expire. Key support for the unemployed in the U.S. and Europe is set to fade, raising the risk of weakening economic momentum and turning the V-shaped recovery into a W. However, as investors seem to be discovering, there are very different implications for U.S. and European workers.

In the United States, an additional $600 per week for the unemployed expires July 31. Although the House passed the HEROES Act in May, which would extend this CARES Act benefit until January, it is unlikely to pass in the Senate when it reconvenes this week. The average unemployment payout without the CARES Act benefit is only $333 per week. Losing the extra $600 a week is like a two-thirds cut to income for 17 million Americans receiving state unemployment benefits.

In Europe, the programs work differently. Furloughed worker programs that replace 60-90% of workers’ incomes while keeping them on company payrolls are expiring in coming months (Spain’s ended in June, but was extended to September). As a result, the official unemployment rate will likely rise this quarter. Because furloughed workers are not counted in the unemployment tally, there has been quite the difference in Eurozone unemployment when compared with the U.S. unemployment rate, as you can see in the chart below.

Unemployment chart of US versus Europe


Source: Charles Schwab, Bloomberg data as of 7/19/2020.

Converging unemployment

This discrepancy could change dramatically. Millions of workers in Europe are at high risk of losing their jobs when the furlough programs expire. Those on furlough vary by country, but average at a quarter of the number of workers employed at year-end 2019 for the major countries of Germany, France, United Kingdom, Italy and Spain. Economists forecast that unemployment rates in Eurozone could converge with that of the U.S., at around 10% by the end of the third quarter.

Potential change in unemployment rate


Q3 forecast is Bloomberg-tracked economist consensus
Latest unemployment rate is as of most recent official monthly or quarterly report.
Source: Charles Schwab, Bloomberg data as of 7/19/2020.