Expired Jobless Benefits Cost Economy Billions, But Some States Reject Trump's Aid

Updated at 9:50 a.m. ET

President Trump's plan to boost unemployment benefits temporarily by $300 a week is getting a fairly cool reception around the country.

Since Trump made the offer earlier this month, fewer than half the states have taken him up on it.

"We have five states that have already been approved," Treasury Secretary Steven Mnuchin told CNBC on Tuesday. "We have another four states that have submitted and about another 10 states that are in the process."

Trump proposed using redirected Federal Emergency Management Agency money to replace half the $600 in weekly unemployment benefits that expired last month. The lack of buy-in from the states leaves a big dent in the spending power of tens of millions of jobless workers.

South Dakota Gov. Kristi Noem, a Republican, was one of the first to reject the president's offer, saying in effect, thanks but no thanks.

"My administration is very grateful for the additional flexibility that this effort would have provided," said Noem, a Trump ally. "But South Dakota is in the fortunate position of not needing to accept it."

South Dakota has the nation's ninth-lowest unemployment rate. But at 7.2%, it's still more than double what it was a year ago.

Food pantries in Sioux Falls and Rapid City are also drawing twice as many hungry people as they used to — including many who are seeking aid for the first time.

"People that have found themselves just in a place they've never been before and making some pretty tough choices," said Jennifer Stensaas, communications coordinator for Feeding South Dakota, a statewide food bank. "They've been furloughed from work. They've been laid off for a period of time. A lot of businesses just closed."

With nearly 34,000 South Dakotans out of work in June, Democratic state Sen. Reynold Nesiba said he is mystified by the governor's decision. He said the rejected benefits would have provided $10 million a week that jobless residents could have used to help buy groceries or school supplies or to pay the rent.

"This isn't just about the people that are unemployed," said Nesiba, who teaches economics at Augustana University. "By refusing to take this money, she is hurting South Dakota businesses and South Dakota landlords and South Dakota bankers."

Nesiba said he worries the economic rebound that the governor is boasting about in South Dakota has been bankrolled in part by some $3 billion in federal aid to the state — including jobless benefits, $1,200 pandemic relief payments and paycheck protection loans.

Much of that federal money has now been exhausted, not only in South Dakota but around the country. And efforts to craft a comprehensive new aid package in Congress have stalled.

Since the supplemental $600 in weekly unemployment benefits expired at the end of July, jobless payouts nationwide have dropped by about $15 billion per week.

"That's pretty substantial," said Ernie Tedeschi, policy economist at Evercore ISI. "That's equivalent to about 4% of the American economy."

Ordinary state unemployment benefits cover 30% to 50% of a worker's lost pay, on average, so jobless Americans have seen a significant drop in their spending power.

"They woke up on Aug. 1 facing a 50 to 75% pay cut from what they had been making the day before," Tedeschi said. "They're going to have to make some pretty devastating cuts."

The $300 weekly replacement proposed by the president would be better than nothing. "But it's a clunky, untested, logistically and legally challenging way of putting a Band-Aid on the problem," Tedeschi said.

Even if all states accepted the offer, the FEMA money identified by the president would cover only about five weeks of benefits.

Unless Congress agrees to a more sustainable increase in jobless benefits, Tedeschi warned that retail sales and job growth are likely to suffer.

Walmart said Tuesday that government relief payments provided a significant boost for the retail giant's sales during the last three months. As stimulus money dried up in late July, however, sales cooled.

"There's a lot of uncertainty right now and so much variance in how customers are feeling about their situation," CEO Doug McMillon said in a conference call. "This economy and this country are driven so much by small and medium-sized businesses that we want to see something happen there that will help support those folks."

As policymakers in Washington argue over a new round of spending, 800 to 1,000 South Dakota families keep showing up each Tuesday and Thursday at the food pantry in Sioux Falls.

"We're in it for the long haul," Stensaas said. "Food is such a basic need. No one should have to go without."

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