Written by rjs, MarketWatch 666
The news posted last week about economic effects related to the coronavirus 2019-nCoV (aka SARS-CoV-2), which produces COVID-19 disease, has been surveyed and some articles are summarized here. There are several ‘worst-in-years’ economic metrics, and a lot on the employment report plus some other Main Street economic impacts. I conclude with a handful of reports from other counties around the globe. (Picture below is morning rush hour in downtown Chicago, 20 March 2020.) News items about epidemiology and other medical news for the virus are reported in a companion article.
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Fed’s Repo Loans to Wall Street Skyrocket by 230 Percent Week Over Week – Pam Martens – Between Monday and Friday of last week, the Fed made $304.20 billion in repo loans to Wall Street’s trading houses. That was 230 percent of what it made the week before and 700 percent of what it loaned the week before that. (See chart above.) This would suggest that the liquidity crisis is heating up and/or that it’s taking ever larger amounts to levitate the stock market as sellers come back in. The Fed has gone completely bonkers when it comes to its money spigot to Wall Street. On March 17, the New York Fed announced that it was going to be offering daily one-day loans of half a trillion dollars to Wall Street’s trading houses. That offer has been going on ever since but the daily amounts actually borrowed from the Fed have never gotten near that daily amount – thus far. The Wall Street banks that own the trading houses to whom the Fed is making the loans know that the Fed will likely be sued to release this information to the public. If they borrow too much from the Fed it will taint their reputation as a firm that was potentially insolvent or, at best, couldn’t get access to loans elsewhere. The Fed gets the added advantage of frightening the shorts out of the market with that giant, daily, half a trillion dollars number. What short trader wants to compete against a potential daily influx of half a trillion dollars being levered up and going long. Not only is the size of what the Fed is offering to trading houses nuts, but the interest rate is crazy as well. Never before in history has the Fed made emergency loans to Wall Street’s trading houses at 1/10th of one percent interest, as it is presently doing on its repo loans. Why aren’t we reading about this in mainstream newspapers? It’s an outrageous subsidy to Wall Street with no comparable subsidy to the public. Private student loans are running as high as 12 percent while interest on credit card debt is even higher. The Fed can’t seriously claim to be helping families while ignoring this interest rate disparity. Throughout the Fed’s history, which dates back to 1913, the concept of the Fed serving as lender-of-last-resort is that any emergency loans it makes should be at penalty rates to punish banks for getting into trouble and needing a bailout from the Fed. Not only is the Fed breaking a cardinal rule by not inflicting penalty rates on banks, but it’s loaning to trading firms instead of sticking to its knitting and making loans to commercial banks that can boost the economy with business and consumer loans. And the repo loans are only one of multiple bailout programs that the Fed has concocted for Wall Street.
The Fed Just Pulled Off Another Backdoor Bailout of Wall Street – By Pam Martens – The Federal Reserve has authorized 11 financial bailout programs thus far. Despite Fed Chairman Jerome Powell’s reassurances at his press conferences that these programs are to help American families, a full 10 of these programs are actually bailouts of Wall Street banks or their trading units.The latest Wall Street bank bailout to come out of hiding is the Fed’s Secondary Market Corporate Credit Facility (SMCCF). This program was supposed to buy up corporate bonds in the secondary market in order to help corporate bond markets regain liquidity. Thus far, the only thing the SMCCF has bought up are Exchange Traded Funds (ETFs) holding investment grade and junk-rated bonds.The SMCCF program began operations on May 12. By May 18 the Fed had spent $1.58 billion buying up ETFs. The ultimate goal of the facility, at this point, is to spend $250 billion on ETFs and secondary market corporate bonds. The U.S. Treasury Department was supposed to hand over $25 billion of taxpayer money to eat losses on the SMCCF program. Instead, without explanation, the latest data from the Fed shows that the Treasury deposited $37.5 billion into the SMCCF, suggesting the program is expecting losses of greater than $25 billion.The bulk of the purchases of ETFs were those issued by BlackRock, the company to whom the New York Fed has outsourced the program. The Fed is allowing BlackRock to buy up its own, previously sinking, ETFs as well as those of other ETF issuers. The New York Fed gave BlackRock a no-bid contract to run the program as investment manager. But that’s far from the only outrage.Here’s where you need to pay close attention. The Fed released a list of the Wall Street firms that are selling these ETFs to the Fed’s bailout facility. (See chart above.) The majority of the sellers just happen to be the very same firms that create these ETFs under the title of “Authorized Participants.”
FOMC Statement: “The coronavirus outbreak is causing tremendous human and economic hardship” —FOMC Statement: The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health have induced sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.
FOMC Projections and Press Conference (see tables) Statement here. Fed Chair Powell press conference video here starting at 2:30 PM ET. Here are the projections. GDP decreased at a 5.0% annual rate in Q1, and most forecasts are for an annual rate decline of 30% to 40% in Q2 – and for GDP to decline in 2020. The course of the economy will depend on the course of the pandemic, so the FOMC has to factor in their expectations of when the pandemic will subside and end (and no one knows at this time).GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.The unemployment rate was at 13.3% in May. The FOMC will revise up their Q4 2020 unemployment forecast significantly. The FOMC projections for the unemployment rate at the end of 2020, 2021 and 2022 will be interesting. Note that the unemployment rate doesn’t remotely capture the economic damage to the labor market. Not only were there 15+ million more people unemployed in May than at the end of 2019, but another 6+ million have left the labor force. And close to 50% of households have seen a decline in income. Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.As of April 2020, PCE inflation was up 0.5% from April 2019. With the economic stop in March, PCE inflation will be revised down significantly for Q4 2020.Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation PCE core inflation was up 1.0% in April year-over-year. Core inflation will also be revised down for Q4 2020. Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents:
Fed to keep interest rates near zero indefinitely – The US Federal Reserve Board has indicated interest rates will remain at virtually zero at least to the end of 2022 and that it will continue to pump money into the financial system. In response to a question at his press conference about whether the Fed would change its policy outlook if there was a surprise upturn in the US economy, Fed chairman Jerome Powell said: “We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates.” In other words, the commitment is virtually indefinite. Reporting on the Fed announcements, the US business channel CNBC ran a banner “Zero interest rates forever?” Giving its first forecast on the direction of the US economy since last December – no forecast was provided at its last meeting on the basis that it was too early to assess the effects of the pandemic – the Fed indicated it would take years before unemployment came down to levels in the pre-COVID-19 period. It forecast the US economy would contract by 6.5 percent this year and unemployment would be 9.3 percent. In his opening statement to his press conference, Powell said the decline in GDP in the second quarter was “likely to be the most severe on record.” Powell said there was a group of people who would not be able to go back to work quickly and “that could be many millions of people.” The Fed’s policy statement said it was “committed to using its full range of tools to support the US economy in this challenging time” and it would keep interest rates close to zero until it was “confident the economy has weathered recent events.” Powell made clear throughout his remarks that the flow of central bank funds into financial markets would continue. The Fed said it would increase its holdings of government debt “at least at the current pace to sustain smooth market functioning.” It is currently buying around $20 billion worth of US Treasuries every week, an average of $4 billion per day. The Fed continually insists that its financial market interventions are not directed to bolstering the stock market and are directed to ensuring the smooth flow of credit to households and businesses in the broader economy. But as is widely recognized in financial circles, the rise of the stock market since its plunge in mid-March is entirely due to the massive intervention of the Fed to the extent that it is now the backstop for all areas of the financial system, from government bonds to student and credit card debt.
Fed Debates Whether to Reinforce Low-Rate Pledge With Yield Caps – To stimulate the economy in the past decade with interest rates pinned near zero, the Federal Reserve made promises about how long they would remain low.Now, Fed officials are thinking hard about a new tool that would reinforce such promises by committing to buy Treasury securities in whatever amounts are needed to peg certain yields at low levels.Fed officials aren’t prepared to announce any decision on so-called yield caps when their two-day policy meeting concludes Wednesday.With rates near zero and unlikely to go lower, two other policy questions must get resolved first: how to manage their pace of bond purchases and how to communicate their long-run intentions, using so-called forward guidance.Fed officials believe forward guidance helps stimulate demand after their policy rate is near zero because it sets public expectations about future policy, which influences the rates set by markets.How they calibrate those two tools could determine whether and how they cap yields, which would function as a hybrid of both. The Fed hasn’t capped yields on Treasury securities since 1951, when it dismantled a stimulus scheme used during World War II.Fed officials are closely studying the experience of Australia’s central bank, which in March set atarget of 0.25% for the country’s three-year government-bond yield and which has so far managed to keep it there without significant asset buying.For the U.S., caps might work like this: If the Fed concludes it is likely to hold rates near zero for at least three years, it could amplify this commitment by capping yields on every Treasury security that matures before June 2023.While some officials don’t think caps are needed now because investors don’t expect the Fed to lift short-term rates for several years, caps could limit any unwelcome jump in Treasury yields due, for example, to a coming surge of government-debt issuance to finance virus-related economic relief.Reinforcing forward guidance with caps could also push back against the strong pressure to raise rates that officials faced last decade amid fears of an inflation upturn that never materialized, said Fed governor Lael Brainard in a speech last fall.
Trump Says Fed’s Forecasts Are Too Gloomy – WSJ – President Trump criticized the Federal Reserve on Thursday after its chairman, Jerome Powell, said Wednesday the economy faced a potentially long road to full recovery and that the central bank would provide more support as needed. “The Federal Reserve is wrong so often,” Mr. Trump said on Twitter. “I see the numbers also, and do MUCH better than they do. We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021.” Mr. Trump’s statement followed a stock-market selloff Thursday. The Dow industrials tumbled as fresh concerns about a new wave of coronavirus infections sent investors out of risky assets. Mr. Trump also said on Twitter that “We will also soon have a Vaccine & Therapeutics/Cure” for the new coronavirus. “That’s my opinion. WATCH!” Even with the report last week that the economy added jobs in May, there are still nearly 20 million fewer Americans employed than there were in February. Mr. Powell said Wednesday it was possible that millions of people wouldn’t go back to their old job or their prior industry, given the potential for reduced demand for goods or services that require increased human contact. “It could be some years before we get back to those people finding jobs,” he said. Fed officials issued projections Wednesday that show they expect the economy to require interest rates near zero for years. Mr. Trump regularly attacked the Fed last year for not doing more to support the economy when it was stronger. Fed officials projected the unemployment rate to end the year just below 10%, down slightly from 13.3% in May. They projected the economy to contract between 4% and 10% this year, and that the economy could see anywhere from 7% growth next year to a further contraction of around 1%. Mr. Trump had railed at the Fed for almost two years until mid-March, when Mr. Powell led the central bank to cut rates to zero at two emergency meetings and to purchase vast sums of Treasurys and mortgage securities to avoid a financial panic. The Fed has also worked closely with the Treasury Department to provide loans to businesses, cities and states, providing a safety-net for credit markets that easily exceeds anything the central bank did after the 2007-09 financial crisis. Mr. Trump subsequently praised Mr. Powell, and last month referred to him as his “most improved player.”
Fed expands middle-market loan relief to attract more interest – The Federal Reserve is making a number of last-minute changes to a middle-market loan program in an apparent bid to boost its appeal among prospective participants. The Fed on Monday announced new flexibility on loan amounts for qualifying businesses, and that the central bank increase its stake to 95% on all loans made through the Main Street Lending Program. The program, aimed to help midsize business affected by the coronavirus crisis, is expected to be open for business shortly. It will be available to companies with up to 15,000 employees or $5 billion in annual revenue. But whereas the Fed had previously established a minimum loan amount of $500,000, that threshold has been halved to $250,000. The Fed also increased the maximum loan size for each of the three Main Street Lending Program facilities. In the Main Street New Loan Facility, borrowers will be able to get loans of up to $35 million (up from $25 million); for the Main Street Priority Loan Facility, the maximum is $50 million (up from $25 million); and for the Main Street Expanded Loan Facility, it is $300 million (up from $200 million). The Fed also made changes to offer borrowers greater flexibility in repaying Main Street loans, extending the loan terms from four to five years. The prepayment periods for all of the loans will also be extended, and the Fed will now allow borrowers to delay principal payments for two years instead of one. Additionally, the Fed said the Main Street Lending Program would now purchase 95% of each eligible loan. That amount is unchanged for the New Loan Facility and the Expanded Loan Facility, but is up from 85% for the Priority Loan Facility. The changes appear to be in response to concerns that the program as originally conceived could be too restrictive for companies to participate. The higher Fed stake in loans, in particular, could help to assuage some concerns banks had about participating in the program and holding extra risk on their balance sheets.
Amid Small Business Carnage, Fed Expands Eligibility Of Main Street Lending Program– With stocks recovering all 2020 losses, one would think that the economy is firing on all cylinders. Unfortunately, based on the message just sent out by the Fed, nothing could be further from the truth.While the market still waits for the Fed to officially start making loans on its Main Street Lending Program, today at 330pm, the Fed announced that it expanded the eligibility criteria for this facility “to allow more small and medium-sized businesses to be able to receive support.” The facility will be open for eligible lenders “soon,” while the burden on banks that create the loans would be lessened.Changes to the eligibility criteria include:
- Lowering the minimum loan size for certain loans to $250,000 from $500,000;
- Increasing the maximum loan size for all facilities;
- Increasing the term of each loan option to five years, from four years;
- Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
- Raising the Reserve Bank’s participation to 95% for all loans.
In short: America’s small businesses – and we mean really small business, those which desperately need as little as 250K to survive yet can’t find willing bank lenders – are in such dire shape that only the Fed has the willingness to step in and bail them out as banks refuse to take on the credit risk.To juice bank interest in participating, going forward they will be required to hold only 5% of the loans on their balance sheet for all three facilities, far less than the 15% they had to hold previously.
Delay of Fed’s Main Street program hasn’t hurt businesses, Powell says – Federal Reserve Board Chairman Jerome Powell said he doubts the delay in rolling out the Main Street Lending Program has put businesses at a disadvantage.The central bank announced the MSLP in April to facilitate credit for small and medium-sized businesses struggling economically during the coronavirus pandemic, but the Fed only now is nearing the launch of the program.At a press conference Wednesday, Powell said despite the delay, credit has been widely available for companies needing cash. The Fed has established roughly a dozen liquidity facility since the virus outbreak in March, many of which are already operational. “Remember, lots and lots of companies are getting financed, the banks are lending, the markets are open [and] you have a much easier lending climate certainly than we had in February and March,” he said speaking at his monthly press conference after the meeting of the Federal Open Market Committee. “We don’t think it’s too late.” Powell added that the latest set of changes the Fed made to the terms of the Main Street Lending Program earlier in the week were “very positive,” and were developed after the Fed received extensive feedback. The $600 billion Main Street Lending Program will make loans of at least $250,000 available to businesses with up to 15,000 employees or $5 billion in annual revenue. The Fed will use funding appropriated to the Treasury Department through the Coronavirus Aid, Relief and Economic Security Act.
Powell- Fed Will Never Hold Back Support For The Economy Even If Asset Prices Are Too High — In recent days there was speculation whether Powell would acknowledge frothy investor mentality as observed by the daily insanity on Robin Hood and other daytrading platforms, resulting from the massive surge in central bank liquidity resulting in a 40% spike in stocks, and whether it would prompt the Fed to at least concede that it is in the process of blowing another bubble. As a reminder, just yesterday SMBC Nikko analyst Masao Muraki said that “soaring risk asset prices (ie imbalances) have reached a point where the Fed may be forced into some kind of action.” Alas, whereas this question did come up during the FOMC press conference, here is what Powell did say:“We’re not focused on moving asset prices in a particular direction at all, it’s just we want markets to be working and partly as a result of what we’ve done, they are working.”He also said that “we are not looking to achieve a particular level” for any asset price, instead, “we want the markets to be working” and that’s what Fed policy has been working toward as part of its effort to lift the economy. His conclusion, however, was ominous: “we want investors to price in risk like markets should” and explained that the Fed would never hold back support for economy because it thinks asset prices are too high: “We would be prepared to tolerate or I should say to welcome very low readings on unemployment without worrying about inflation.”This comment was in the response to the final question in the presser, and confirms that the Fed doesn’t care if they goose the stock market so long as they believe their actions are going to lead to progress on full employment and 2% inflation.
Fed Has No Idea What Is Coming- Sees Unemployment Rate Between 7% And 14% This Year – While the Fed’s summary economic projections showed a rather optimistic rebound in the average forecast for various economic indicators, including GDP surging from -6.5% in 2019 to 5.0% in 2021 and 3.5% in 2022, while unemployment slides from 9.3% to 6.4% in 2020 and more in 2021… … the reality is that there appears to be a huge dispersion in opinions at the FOMC, with the unemployment rate seen between 7% and 14% this year, which means means at least one person at the Fed expects the unemployment rate to be higher at the end of 2020 than was reported last week. while GDP is seen in a huge range of -10% to -4.2%. And while things get a bit better in 2021, even here the range is surprisingly wide, with unemployment from 5.9% to 7.5% while GDP is expected to be in a range of -1% to 7%. As Bloomberg’s Chris Condon notes, “that’s a tremendous gap and underscores the level of uncertainty facing policy makers. This continues in the 2021 projections. The range for unemployment there goes from 4.5% out to 12%. Remarkable.”
NBER: February 2020 was Peak in US Economic Activity — This was a quick call from NBER. Usually it takes many months, but this recession was obvious. Note that they think the recession will likely be shorter than previous recession (just meaning activity will start increasing from the bottom). From NBER: Determination of the February 2020 Peak in US Economic Activity – The Business Cycle Dating Committee of the National Bureau of Economic Research maintains a chronology of the peaks and troughs of U.S. business cycles.The committee has determined that a peak in monthly economic activity occurred in the U.S. economy in February 2020. The peak marks the end of the expansion that began in June 2009 and the beginning of a recession. The expansion lasted 128 months, the longest in the history of U.S. business cycles dating back to 1854. The previous record was held by the business expansion that lasted for 120 months from March 1991 to March 2001. The committee also determined that a peak in quarterly economic activity occurred in 2019Q4. Note that the monthly peak (February 2020) occurred in a different quarter (2020Q1) than the quarterly peak. The committee determined these peak dates in accord with its long-standing policy of identifying the months and quarters of peak activity separately, without requiring that the monthly peak lie in the same quarter as the quarterly peak. Further comments on the difference between the quarterly and monthly dates are provided below. The usual definition of a recession involves a decline in economic activity that lasts more than a few months. However, in deciding whether to identify a recession, the committee weighs the depth of the contraction, its duration, and whether economic activity declined broadly across the economy (the diffusion of the downturn). The committee recognizes that the pandemic and the public health response have resulted in a downturn with different characteristics and dynamics than prior recessions. Nonetheless, it concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.
Recession in U.S. Began in February, Official Arbiter Says – The U.S. officially entered a recession in February, marking the end of the 128-month expansion that was the longest in records reaching back to 1854. While Monday’s announcement by the National Bureau of Economic Research didn’t come as a surprise to economists, the group typically waits until a recession is well under way before declaring it has started. But this time, the severity and breadth of the coronavirus-induced downturn prompted it to break with past practice, “even if it turns out to be briefer than earlier contractions,” the NBER’s Business Cycle Dating Committee said. Investors are betting on that outcome: The Dow Jones Industrial Average rose 461 points on Monday, up 1.7% and just 6.7% shy of its February highs. The probable duration of the recession is a matter of debate among economists and policy makers and is likely to influence discussions on the need for additional economic relief. Congress has already provided $3.3 trillion in emergency spending and tax breaks to support the economy, prompting some worries about a ballooning budget deficit. Some policy makers, including Larry Kudlow, director of President Trump’s National Economic Council, have predicted that consumer and business spending will bounce back quickly once social-distancing measures are lifted. Others, including Federal Reserve Chairman Jerome Powell, have expressed concern about lasting economic damage. Karen Dynan, a senior fellow at the Peterson Institute for International Economics and former Treasury Department official, said that while the recession will likely be much shorter than the previous one in 2007-09, the aftermath could be similarly long and slow, given the severity of the shock. “We fell into a gigantic hole, and even if we make substantial progress climbing out over the next few months, we’re still probably going to be considerably in the hole,” she said. The nonpartisan Congressional Budget Office said last week the U.S. economy could take the better part of a decade to fully recover. Gross domestic product will likely be 5.6% smaller in the fourth quarter of 2020 than a year earlier, despite an expected pickup in economic activity in the coming months, and the unemployment rate could still be in double digits by the end of the year, the CBO said. The agency has said the federal budget deficit is likely to hit $3.7 trillion in the fiscal year ending Sept. 30, fueled by stimulus spending and declining revenue.
The Longest Expansion In History Is Officially Over- The US Entered Recession In February, NBER Finds – While it should hardly come as a surprise to anyone who can fog a mirror, The Business Cycle Dating Committee of the National Bureau of Economic Research – the official arbiter of whether America is in recession or not – has issued a statement confirming that February 2020 marks the end of the expansion that began in June 2009 and the beginning of a recession. . This was the longest period of economic expansion in US history at 128 months… Full Statement from NBER: The Business Cycle Dating Committee of the National Bureau of Economic Research maintains a chronology of the peaks and troughs of U.S. business cycles. The committee has determined that a peak in monthly economic activity occurred in the U.S. economy in February 2020. The peak marks the end of the expansion that began in June 2009 and the beginning of a recession. The expansion lasted 128 months, the longest in the history of U.S. business cycles dating back to 1854. The previous record was held by the business expansion that lasted for 120 months from March 1991 to March 2001.The committee also determined that a peak in quarterly economic activity occurred in 2019Q4. Note that the monthly peak (February 2020) occurred in a different quarter (2020Q1) than the quarterly peak. The committee determined these peak dates in accord with its long-standing policy of identifying the months and quarters of peak activity separately, without requiring that the monthly peak lie in the same quarter as the quarterly peak. Further comments on the difference between the quarterly and monthly dates are provided below. A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide indicators of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity.
So when did this recession start, exactly? – Frances Coppola – Is the U.S. in recession? If so, when did the recession start, and what caused it? The usual economic definition of “recession” is two successive quarters of negative GDP growth. But in Q1 2020, growth was positive, though it was apparently slowing sharply (more on this shortly): So using the standard economic definition, the U.S. is not yet in recession.But according to the Business Cycle Dating Committee of the National Bureau for Economic Research (NBER), the U.S. entered recession in February: The committee has determined that a peak in monthly economic activity occurred in the U.S. economy in February 2020. The peak marks the end of the expansion that began in June 2009 and the beginning of a recession. February? The New York Fed’s nowcasting report for February showed no sign of recession. The most recent nowcast shows the economy dropping off a cliff at the beginning of April: Of course, even nowcasts have lagging data. The date of the collapse according to this chart is when the NY Fed reported it, not when it actually happened. But a collapse in February? Really?No, there was no GDP collapse in February. Quite the reverse, in fact. in February, the growth rate peaked. The trend was downwards from then onwards – as the NY Fed’s chart shows. NBER’s announcement that the recession started in February is therefore entirely consistent with Fed nowcasts showing that it started as late as April. Yes, I know this is bizarre. But bizarre things happen when you define the same phenomenon in two different ways. Note that in NBER-world, the growth rate is positive at the start of the recession. Those of you who have read myprevious writing on rates of change (or are familiar with differential calculus) will recognise this as our old friend the second derivative – the point where the trend reverses. The economic definition, however, uses the first derivative – the point where the growth rate itself becomes negative. Since trend reversal precedes growth turning negative, recessions as defined by NBER start earlier than recessions defined using the economic definition. If this isn’t clear, just imagine what happens when you take your foot off the accelerator while driving your car up a hill. The car slows down rapidly, but it continues going forward. It doesn’t immediately start sliding down the hill. In NBER-world, the economy also emerges from recession sooner than in the economic definition. NBER takes the lower turning point, when growth is at its most negative, as the end of the recession, whereas the economic definition requires the growth rate to be positive. We can say, therefore, that the recession as defined in the standard way lags NBER’s definition, possibly by several months. Thus, according to NBER the U.S. is already in recession, whereas according to the economic definition we don’t even know yet if there will be a recession at all. I hope this makes sense.
WSJ Survey: U.S. Recovery From Pandemic Shock to Begin by Third Quarter – WSJ – The U.S. economy will be in recovery by the third quarter of this year, economists said in a survey that also concluded the labor market will fare better than previously expected following the effects of the coronavirus pandemic. A monthly Wall Street Journal survey found that more than two-thirds of economists, 68.4%, expect the economic recovery to start in the third quarter. Just over a fifth, 22.8%, said it already began in the current, second quarter. The U.S. entered a recession in February, the National Bureau of Economic Research determined this week. Business and academic economists polled in the survey expect gross domestic product to shrink 5.9% this year, measured from the fourth quarter of 2019, a slight improvement from the 6.6% contraction economists predicted in last month’s survey. They also expect, on average, that the unemployment rate will be slightly lower by December, 9.6%, compared with last month’s forecast of 11.4%. In the June survey, 69% of economists said they expect the recovery to be shaped like a “swoosh.” So named because it recalls the Nike logo, it suggests a large drop followed by a gradual recovery. That was broadly unchanged from May.On average, economists expect the Fed will keep its benchmark short-term interest rate pinned near zero for the next two years, a forecast in line with the Fed’s own projections. The surveyed economists see one quarter-percentage-point increase by June 2022 and another by December 2022. Federal Reserve officials on Wednesday indicated that interest rates were likely to stay put through 2022 and said they were committed to providing more support to the economy following shutdowns to contain the coronavirus. Economists don’t think that support will include experimenting with negative policy rates, a remedy tried by the Bank of Japan, the European Central Bank and the central banks of Sweden, Denmark and Switzerland. While President Trump has tweeted in favor of negative interest rates, Federal Reserve officials have indicated little appetite to cut interest rates below zero. Just 1.7% of economists expected the Federal Reserve will cut its benchmark policy rate below zero in the next two years. In response to a separate question, no economists in the survey said the Fed should go negative to provide further economic stimulus. “The Fed has been clear – the threshold for negative rates is extremely high, and they do nothing to cure what ails an economy hobbled by a pandemic,” said Diane Swonk, chief economist at Grant Thornton.
Signs of a V-Shaped Early-Stage Economic Recovery Emerge – WSJ – The first stage of the recovery looks V-shaped. After bottoming out in April, economic activity has continued to rise into early June, recapturing some of the collapse that occurred when most of the country locked down to contain the spread of Covid-19, according to a range of private data. Whether the recovery can continue at this pace remains clouded by uncertainty over future fiscal stimulus, resurgent infections and the drag of unprecedented job loss on consumer finances. Nonetheless, an L-shaped recovery, in which activity stays depressed, now looks remote. And while the overall recovery may not end up a V, it may also be less feeble than many had feared. The strongest evidence comes from consumer spending. In April, retail sales collapsed by 16%, the biggest one-month drop on record. The government reports May sales data on Tuesday, and economists expect a 7.9% jump, recouping 40% of April’s drop. Meanwhile, week-to-week patterns point to continued growth into early June. Department store sales in the week ended June 10 were actually above year-earlier levels, according to Facteus, which analyzes transactions by 16 million debit and credit card holders for banks. Grocery, discount, variety and general-merchandise store sales all recorded sales above year-ago levels. Restaurants and hotels were still down from a year earlier but not by nearly as much as in April. Movie theaters, airlines and amusement parks are still deeply depressed.The data aren’t weighted by geography and skew toward lower-income debit-card users, said Lorn Davis, vice president of corporate and product strategy at Facteus. Nonetheless, they line up with reports of surprisingly strong sales at reopened department stores.Karen Dynan, an economist affiliated with the Peterson Institute for International Economics, said she expected “the first part of the recovery would be rapid – a significant bounce after a deep plunge in activity as businesses that people can safely engage with reopen. I’m not too surprised to see what looks like a considerable pickup from the deeply depressed April numbers, but I also think the pace of recovery is going to slow way down after the businesses that can easily reopen do so.”Indeed, Mr. Davis attributed some of the rise in retail sales so far to pent-up demand driven by stimulus checks, which may not be sustained. Homebase, whose software handles scheduling for small businesses, said businesses reopened rapidly between mid-April and June 1, but reopenings have edged up more slowly since then.
Total US Debt Increases By $1 Trillion In One Month – It took the US over two centuries to accumulate its first trillion dollars in Federal debt, a number which was surpassed for the first time in the fourth quarter of 1981. Fast forward less then 40 years to today, when according to the US Treasury, total US debt just surpassed $26 trillion, or $26,003,751,512,344.91 as of June 9, to be exact. What is stunning, however, is the recent pace of increase: total debt was “only” $23.5 trillion on March 23, the day the Fed unleashed unlimited QE, meaning that in two and a half months, the US has added $2.5 trillion in debt. And the punchline: the US added the last trillion dollars in the shortest time on record, achieving this remarkable feat in just one month, since May 4, when total debt was just under $25 trillion. For context, here is total US debt since the start of the century. In light of this unprecedented helicopter paradrop of debt, something tells us that the Fed’s schedule released today of monetizing “only” $80 billion in Treasurys each month, or about $1 trillion per year, will not be sufficient.
Federal Budget Deficit Nears $2 Trillion – The U.S. budget gap more than doubled in May, pushing the deficit for the fiscal year to near $2 trillion, as federal revenues plunged and government spending soared to help combat the coronavirus pandemic. The federal deficit last month widened to $424 billion, more than twice what it was in May 2019, the Congressional Budget Office estimated Monday. For the first eight months of the fiscal year, which began in October, the deficit totaled $1.9 trillion, compared with $739 billion in the same period a year earlier, CBO said. For the past 12 months, the deficit as a share of gross domestic product stood at roughly 10%, the highest level since February 2010 when the U.S. was still climbing out of the last recession. CBO has estimated the deficit could reach $3.7 trillion for the fiscal year that ends in September, easily surpassing the high-water mark hit during the last downturn. Federal spending climbed 53% last month, to $598 billion, largely due to economic relief measures Congress has enacted amid widespread shutdowns of the economy. Outlays for unemployment benefits, stimulus checks and small-business lending fueled the rise, along with spending on grants for states and local governments and airlines. Federal revenue in May fell 25% from a year earlier to $175 billion. The drop in economic activity means that fewer people are working, so the government is collecting less in payroll and income taxes. In addition, Congress created some new tax breaks to help businesses and individuals weather the economic storm. Some of the revenue decline reflects a timing shift – a deliberate choice by the government to let taxpayers keep their money. Congress allowed employers to defer some payroll taxes throughout 2020 and let businesses and individuals delay some tax payments until July. The government should collect much of that money eventually. Furthermore, because of the delayed tax-filing deadline, some refunds that would normally be paid in April were made in May, which reduced last month’s revenue total. Until the pandemic hit, federal revenue was rising, up 6% for the fiscal year that started Oct. 1. Through May, however, receipts are down 11%, including 23% drops in individual and corporate income taxes.
Learn to Love Trillion-Dollar Deficits — Our country’s myth about federal debt, explained. By Stephanie Kelton – Last week, a bipartisan group of 60 members of the U.S. House of Representatives sent a letter to congressional leadership, raising concerns about mounting debt and deficits that have come as a result of the federal government’s response to the coronavirus pandemic. “We cannot ignore the pressing issue of the national debt,” they wrote. The letter warned of “irreparable damage to our country” if nothing is done to stem the tide of red ink. Senator Mike Enzi, Republican of Wyoming, chairman of the Senate Budget Committee, echoed their concerns. It’s an ominous sign for the smaller businesses and millions of unemployed Americans whose survival may very well depend on continued government support in this crisis. While these Democratic and Republican lawmakers stopped short of calling for immediate austerity measures, their remarks demonstrate that they have fallen prey to what I call the deficit myth: that our nation’s debt and deficits are on an unsustainable path and that we need to develop a plan to fix the problem. As a proponent of what’s called Modern Monetary Theory and as a former chief economist for the Democrats on the Senate Budget Committee, intimately familiar with how public finance actually works, I am not worried about the recent multitrillion-dollar surge in spending. In 2020, Congress has been showing us – in practice if not in its rhetoric – exactly how M.M.T. works: It committed trillions of dollars this spring that in the conventional economic sense it did not “have.” It didn’t raise taxes or borrow from China to come up with dollars to support our ailing economy. Instead, lawmakers simply voted to pass spending bills, which effectively ordered up trillions of dollars from the government’s bank, the Federal Reserve. In reality, that’s how all government spending is paid for. M.M.T. simply describes how our monetary system actually works. It matters because to lift America out of its current economic crisis, Congress does not need to “find the money,” as many say, in order to spend more. It just needs to find the votes and the political will.
The $700 Billion Gorilla In The Room – Zero Hedge – Earlier this week, we observed that as a direct result of a flood of Bill issuance in the past two months, the Treasury’s cash balance which it will use to fund various stimulus programs and other fiscal initiatives, has exploded since the onset of the coronavirus crisis, hitting a record $1.5 trillion last Friday. This, we said, “is notable because in the Treasury’s latest quarterly borrowing needs forecast which projected a funding need of $3 trillion for the current quarter, the Treasury also projected that the cash balance at the end of the quarter would be $800 billion.” This also means that if indeed the Treasury’s forecast is accurate, then over the next two weeks, the Treasury’s cash balance has to drop by a record $700 billion to hit the $800 billion target! Picking up on this quandary facing both the Treasury and the financial system, today Bloomberg writes that what the Treasury will do with its record $1.5 trillion pile of cash “has become the biggest wild card for funding markets as quarter-end approaches.” That’s because, as we explained first last year when the Treasury’s cash balance spiked in September, triggering the first repo crisis as system reserves were quickly drained, swings in the government’s cash on deposit at the Fed “effectively drain bank reserves as the amount climbs.”As a quick aside, the Treasury General Account which is published daily by the Treasury, operates like the government’s checking account at the Fed. When Treasury increases its cash balance, that’s on the liability side of the Fed’s balance sheet, so as that goes up, it drains reserves from the system In 2015, the Treasury instituted a policy of keeping at least five days’ worth of expenditures, or about $150 billion, in the account in case unexpected disruptions locked it out of debt markets. Before that, Treasury kept enough cash for just two days. But as the US budget deficit has begun to soar, the size of that buffer has grown. Echoing these our observations from Monday, today Bloomberg cautions that this dynamic “is taking on added meaning before quarter-end, with strains in the banking system already appearing to build in the lead-up to June 30. The big question now is whether the Treasury will stick to its end-of-June cash-balance target of $800 billion – about $700 billion below its current level.” To be sure, unlike last September, and the massive cash build observed since March when the Treasury pre-funded much of the upcoming stimulus payments, the concern is now in reverse as shrinking the balance would help ease any quarter-end stress by adding liquidity to the banking system, however “uncertainty is complicating decisions for participants in this key segment of financial markets – from managers of money-market funds, to hedge funds using it to generate liquidity through repurchase agreements.” Indeed, as BMO’s rates strategist Jon Hill says, “It’s like the $700 billion gorilla in the room” adding that “the Treasury has created a multi-hundred billion dollar level of uncertainty for the Fed’s balance sheet going into quarter-end. This is one of, if not the biggest, question over the next three weeks on how the front end plays out with regard to liquidity conditions.” In other words, the question on everyone’s mind, as we put it on Monday, is whether “The Treasury Is About To Flood The US With $700 Billion Over The Next Three Weeks?“
US Has Yet To Cut WHO Funding Despite Trump Move To Terminate Relationship – The Hill reports that as of the close of this week the United States still hasn’t cut funding to the World Health Organization (WHO) despite President Trump controversially vowing to pull the plug on all US funding, which provides the bulk of the UN organization’s budget. Trump made the “final” statement on May 29 amid widespread international criticism against the global health body for essentially being asleep at the wheel while the coronavirus outbreak rippled across the world. US officials have also repeatedly charged the WHO is in Beijing’s pocket, which they say is the reason WHO leaders dithered while the disease raged in Wuhan, soon spreading far outside China’s borders, before it was belatedly labeled a pandemic.The US president had stated: “Because they have failed to make the requested and greatly needed reforms, we will be today terminating our relationship with the World Health Organization and redirecting those funds to other worldwide and deserving, urgent global public health needs.”WHO Director-General Tedros Adhanom Ghebreyesus had immediately urged the administration not the take the drastic action in the middle of a pandemic: “We regret the decision of the President of the United States to order a halt in funding to the World Health Organization,” he said.And now, as The Hill reports, “Two weeks later, no steps toward a formal withdrawal have been taken. A WHO spokesman told The Hill that the agency had received no formal notification that the United States would withdraw.””Senior WHO officials said they continue their relationships with American agencies like the Centers for Disease Control and Prevention (CDC) and the National Institutes of Health (NIH),” the report underscores.
Over 1,300 Chinese Medical Suppliers to U.S. – Including Mask Providers – Use Bogus Registration Data – WSJ -More than 1,300 Chinese medical-device companies that registered to sell protective gear and other equipment in the U.S. during the coronavirus pandemic listed as their American representative a purported Delaware entity that uses a false address and nonworking phone number, according to a Wall Street Journal analysis. All foreign manufacturers of medical devices are required to have a representative with a real address in the U.S. and somebody available during business hours. Such U.S. agents serve as a point of contact between the Food and Drug Administration and these overseas companies, to coordinate inspections, recalls or other urgent needs. At least 1,300 registered Chinese companies have listed CCTC Service Inc. as their U.S. agent. No company by that name exists in the U.S., according to databases of corporate records. CCTC’s purported address is a three-bedroom brick house in Wilmington, Del., whose tenants and landlord say they know nothing about CCTC or any Chinese companies. In the FDA’s rush to respond to the pandemic, regulatory holes have appeared in the agency’s emergency-use authorization program. The Journal’s findings highlight flaws in the FDA’s medical-device database, where a listing is commonly cited by sellers of protective masks as proof of legitimacy. The FDA in May withdrew permission for dozens of manufacturers in China to export N95-style masks to the U.S., reversing emergency approvals the agency had granted the month before. The FDA declined to comment on CCTC. A spokeswoman said its registration database is a helpful tool for the public but doesn’t represent FDA approval, and the agency doesn’t certify registration information. Federal prosecutors last week filed a criminal complaint against a Chinese manufacturer that listed CCTC as its U.S. agent, charging that the listing was part of false registration documents.
Exclusive: Canada, U.S. set to extend border closure to end-July – sources – (Reuters) – Canada and the United States are set to extend a ban on non-essential travel to late July as both countries seek to control the spread of the coronavirus, according to three sources familiar with the matter.Washington and Ottawa introduced month-long restrictions in March and renewed them in April and May. The ban, currently due to expire on June 21, does not affect trade. Canadian and U.S. sources said although the governments had not yet taken a final decision, a further extension was highly likely. “It’s going to be a clean rollover” on June 21, said a U.S. source who requested anonymity given the sensitivity of the situation. “We will want to look at it again in July.” The U.S. Department of Homeland Security was not immediately available for comment. Data show that while the outbreak is slowing across the 10 Canadian provinces, new cases show little sign of abating in Toronto and Montreal, the country’s two largest cities. A majority of provinces have privately told Ottawa they are reluctant to resume non-essential travel, said a second source. Several provinces have clamped down on travel within Canada, and a third Canadian source said these inter-provincial restrictions would make it hard to lift the ban on non-essential travel with the United States. More than 110,000 people have died of the coronavirus in the United States, one of the world’s worst-hit nations. Canada reported 7,835 deaths, and 96,244 coronavirus cases on June 9. A spokeswoman for Canadian Deputy Prime Minister Chrystia Freeland, who has overall responsibility for ties with the United States, said both sides agreed the ban had worked well.
Evidence Grows of Lockdowns’ Toll on Employment – WSJ – Yes, lockdowns cost jobs. That might seem obvious, given the May increase in U.S. jobs, which economists attributed to both relaxed business restrictions in some states and government payments to companies that rehired workers. In fact, the economic costs of lockdowns have been debated since the start of the pandemic. Since many people voluntarily stayed home and kept their distance from others to avoid coronavirus infection, it isn’t clear how much difference mandated social distancing makes. Conceivably, there might be no trade-off between lives and livelihoods if, without lockdowns, there would be more infections and just as much social distancing. But evidence is growing that there is a trade-off. This doesn’t mean the lockdowns are mistakes: The imperative to save lives might warrant such measures despite their economic costs, especially during the early days when so much about the infection wasn’t clear. Nor do we yet know what impact the current easing of restrictions will have on infections and economic activity. “Just because a state reopens does not mean everybody is going back to the way they were in early March,” said Kosali Simon, an economist at Indiana University. “On the other hand, if you thought these laws don’t matter at all, we’re finding they do have an impact.” Pinning down the effect of lockdowns is difficult because voluntary and mandated social distancing often occurred simultaneously, and because almost every U.S. state and country has had some form of social distancing and suffered an economic hit. A team of researchers led by Ms. Simon and Ohio State University economist Bruce Weinberg tackled this by studying mobility data of people at work and Google searches related to unemployment, and compared them to when states imposed stay-at-home orders and closed nonessential businesses. They then examined hard data on weekly claims for unemployment insurance and the Bureau of Labor Statistics’ monthly employment surveys. Their study, released last month, found that work-related mobility dropped notably after the imposition of a stay-at-home order, and unemployment related searches rose sharply after the closure of nonessential businesses. Initial claims for unemployment insurance rose sharply immediately after stay-at-home mandates. Weaker employment is correlated with stay-at-home mandates and business closures.
White House officials downplay chance of COVID-19 ‘second spike’ – – White House economic officials on Friday downplayed concerns about recent spikes in cases of the novel coronavirus in several U.S. states amid fears on Wall Street about a new wave of COVID-19. White House economic adviser Larry Kudlow said on “Fox & Friends” that the developments did not signify a “second spike” nationally of COVID-19, citing conversations with White House health experts the evening prior. Speaking later on Fox News, White House economic adviser Kevin Hassett described some “embers flaring up” in various states, pointing to troubling data in South Carolina and Arizona, but he insisted that cases nationally continue to decline. “The battle is not over but the trends that have been so positive in recent weeks have not really deviated sharply … although there are still some hotspots around the country,” Hassett said. The average number of confirmed cases over a two-week period has doubled or more in Arizona, Arkansas, Oregon and Utah. South Carolina, Nevada, North Carolina and Florida have all set new highs over a seven-day rolling average. Oregon and Utah have paused their reopenings amid rising cases. Oregon reported 178 new COVID-19 cases Thursday, an all-time high for the state, while Utah confirmed a new high of 556 new cases last Friday. Both states were in the process of phased reopening plans but will not move forward while they investigate the increases. “This is essentially a statewide ‘yellow light.’ It is time to press pause for one week before any further reopening,” Oregon Gov. Kate Brown (D) said in a statement Thursday evening.7:58 PM
Tables turned: USAID asks relief groups around the world for protective gear for U.S. use – The U.S. government’s main international relief agency has issued an “urgent request” to aid groups around the world that work with refugees and impoverished people asking them to find personal protective gear and medical supplies that could be made available to the federal government, according to an internal email obtained by NBC News.The U.S. Agency for International Development’s appeal offers yet another sign of how the Trump administration is scrambling to secure badly needed medical equipment amid shortages of gear at American hospitals due to the coronavirus epidemic. The USAID email was first reported by CNN.It’s unclear how much medical equipment the aid groups have to spare, and how the request could affect relief work with refugees and other vulnerable populations around the world. Humanitarian aid groups have already issued warnings that the coronavirus outbreak could have a devastating effect on refugees who often lack access to clean water and are living in crowded conditions. USAID has already ordered a suspension of any shipments of personal protective equipment abroad to safeguard supplies needed in the U.S., as reported previously by NBC News and Politico.The March 27 USAID email, titled “Urgent Request for Inventory of Available PPE and Medical Equipment Resources,” asks groups that carry out USAID-funded projects overseas to take stock of all medical supplies that could be of use to the federal government in its fight against the coronavirus outbreak. The organizations were asked to fill out a spreadsheet with the relevant information and respond by the end of the day.
Document NH’s Sen. Hassan demanded reveals FEMA asking nurses to reuse masks, gowns – Internal Federal Emergency Management Agency data show that the government’s supply of surgical gowns has not meaningfully increased since photos first emerged in March of nurses wearing trash bags for protection. “The demand for gowns outpaces current U.S. manufacturing capabilities,” a document released Tuesday says. The document confirms the fears of nurses and other health care providers. After months of pressure on federal officials to use wartime powers to mobilize U.S. plants, the document’s slides show that domestic manufacturing of gowns and surgical masks has ticked up by a few thousand per month since the pandemic hit, falling far short of need. The United States still does not manufacture any nitrile rubber gloves. Five months after the pandemic first hit U.S. shores _ and after weeks of lockdown and economic collapse to prepare for a surge of cases – critical personal protective equipment such as surgical gowns and masks continues to face a national shortage. The slides show FEMA’s plan to ramp up supply into June and July hinges on the reusing of N95 masks and surgical gowns, increasing the risk of contamination. Those are supposed to be disposed of after one use. The plan to reuse supplies will likely rile many nurses, who have raised safety concerns. Hundreds of health care workers have died from COVID-19, according to the Centers for Disease Control and Prevention. The concerns come amid a growing increase in demand for PPE as states reopen and elective surgeries and dental procedures resume. Long-term care facilities still face widespread shortages. The internal slides were given to the Senate Homeland Security and Governmental Affairs Committee on Friday night ahead of a hearing Tuesday on inadequate distribution of supplies. Sen. Maggie Hassan, D-N.H., demanded the slides be made public Tuesday.
Mnuchin says more financial help for the economy will be needed. – Treasury Secretary Steven Mnuchin told lawmakers on Wednesday that the next round of economic stimulus legislation must be targeted to help industries that have been hit hardest by the coronavirus pandemic and that the focus must be on creating incentives to get jobless workers rehired. Testifying before the Senate’s small business committee, Mr. Mnuchin said that he was pleasantly surprised that the economy added 2.5 million jobs last month and that he believed the economy would improve dramatically in the second half of the year. But the Treasury secretary also said that there is still “significant damage” to parts of the economy that need to be addressed. The White House has held off on negotiating with Congress over another economic relief package, saying that they want to more thoroughly assess how the existing measures are working. However, Mr. Mnuchin made clear that the work of stabilizing the economy is not done. “There’s no question that small businesses in many industries are going to need more help,” he said. Mr. Mnuchin said that the administration will be looking at measures that will encourage businesses to rehire. It is also considering the need for more direct payments to Americans and adjustments to unemployment insurance benefits to ensure that people don’t have incentives to remain jobless. The Treasury secretary sounded cool to the idea of a capital-gains-tax holiday. The Treasury secretary appeared with Jovita Carranza, the administrator of the Small Business Administration, to update lawmakers on the status of the Paycheck Protection Program, a lending initiative that was created in March as a lifeline for small businesses but that was initially plagued by glitches, delays and changing rules.
Steven Mnuchin Says White House Considering Second Round of Stimulus Payments – WSJ – The Trump administration is weighing getting behind a second round of stimulus payments for Americans as part of an economic-relief package Congress is likely to consider next month, Treasury Secretary Steven Mnuchin said Thursday.Mr. Mnuchin said he had discussed with President Trump the idea of additional stimulus payments, though no decision had been made yet on whether to advocate for them in the next bill.“It’s something that we’re very seriously considering,” he told reporters during an online question-and-answer session Thursday.Congress provided an initial round of onetime payments of $1,200 for most adults and $500 for children under age 17 as part of the Cares Act enacted in March. The Internal Revenue Service said it has distributed payments to all eligible Americans for whom it has sufficient information, totaling $267 billion. That money helped households fill holes in their budgets and propped up consumer spending as the economy struggled in April and May. The House of Representatives voted for a second round of payments last month as part of its $3.5 trillion economic-relief package. Those payments would be larger, offering $1,200 each for up to three children instead of $500. The Democratic proposal also covers groups left out of the first round of payments, such as college students, adult dependents and households that include undocumented immigrants.Mr. Mnuchin also said it is extremely unlikely that parts of the U.S. economy would need to shut down again, despite a surge in coronavirus cases in some parts of the country. Mr. Mnuchin said he expected officials will make sufficient medical progress between now and the end of the year, including more widespread testing and effective viral treatments, that will support safe reopening of the economy.
Navarro floats $2T price tag for next coronavirus relief bill – White House trade adviser Peter Navarro said the next coronavirus relief package could provide funding up to $2 trillion as Democrats and Republicans on Capitol Hill debate what should be included in the next round of legislation. Navarro said the next package should focus on the manufacturing sector with the motto of “buy American, hire American.” “It’ll simultaneously create more manufacturing jobs, which tend to pay much higher wages, and it’ll also help the ripple effect to create a lot of those service sector jobs, which we are going to lose to dislocation as we adjust. So the phase four, when you talk about a $3 trillion program by [Speaker] Nancy Pelosi [D-Calif.], you hear from [Senate Majority Leader] Mitch McConnell [R-Ky.] only $1 trillion, the president is very interested in something on the order of at least $2 trillion,” Navarro said Friday on Fox Business. Navarro said the “bulk” of a future package should be focused on the manufacturing of pharmaceuticals and medical supplies and equipment. The remarks come as Congress grapples with further action on the coronavirus while cases spike in more than a dozen states across the country. House Democrats last month unveiled a $3 trillion coronavirus relief package that includes funding for food assistance and state and local governments, which members of the lower chamber say will address the dwindling state budgets that have been used to fight the pandemic. It also includes another round of direct stimulus payments to individuals, hazard pay for essential workers on the front lines of the pandemic and money to help voters mail in ballots for the November elections. Republicans have dismissed the legislation as a grab bag of liberal priorities and have instead adopted a wait-and-see approach, particularly after the economy added jobs in May. The Senate GOP has said it does not expect to be able to pass another coronavirus relief bill until mid-July or later. Still, Navarro expressed confidence that the White House would be able to helm a successful economy regardless of what kind of legislation is ultimately passed. “The economic crisis we’re facing, we can deal with. We have a president who in three years built the most beautiful economy in modern history. We can do it again, but it’s going to be a different strategy than the last time,” he said. “First-time tax cuts, deregulation, cheap energy and above all fair trade deals. We’re going to do all of that, but we’ve got to do more. We’ve got to focus on this buy American, hire American, make it here so that all around this great country we’re going to have Americans making stuff with high technology.”
Congress Confronts Summer Deadlines for Stimulus Spending Decisions – WSJ – With the Federal Reserve pledging to do whatever it can to pull the U.S. out of a recession, it is now up to Congress to decide how much more of a spending boost the economy needs, and what form it should take. Important deadlines are looming. Millions of jobless Americans will see their extra unemployment benefits disappear at the end of July unless Congress extends them. Deferred tax payments are due July 15. And many state and local governments must complete annual budgets by June 30. They are counting on more federal aid to close gaping deficits that have forced them to cut spending and lay off workers. Decisions on additional spending depend largely on differing views of the outlook for a recovery. While an unexpected drop in unemployment in May to 13.3% suggested a nascent upturn might be under way, some economists warned not to place too much faith in a single month’s numbers. “I’m concerned this will be interpreted as the all-clear signal – that the economy will recover on its own,” said Mohamed El-Erian, chief economic adviser at Allianz. “The first steps of coming out of the lockdown look like a very sharp recovery, but then it gets a lot tougher.” Chairman Jerome Powell on Wednesday committed the Fed “to do whatever we can for as long as it takes” to support the economy. Fed officials projected no plans to raise interest rates through 2022 and said they would maintain the recent pace of securities purchases, effectively ending gradual reductions. Asked at a news conference if more government spending was warranted, Mr. Powell said: “Of course if there were more fiscal support, you would see better results sooner. But that’s a question for Congress.”
Senate Democrats seek simpler loan forgiveness process for PPP – Senate Democrats are calling on the Treasury Department and Small Business Administration to simplify the process for businesses applying for loan forgiveness under the Paycheck Protection Program. In a letter Friday to SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin, all 47 Senate Democrats said they have heard “significant concerns” from small businesses that the current 11-page application to have coronavirus relief loans forgiven is “especially burdensome, time-consuming, and costly.” “Small businesses should not need to spend precious resources on an accountant or attorneys to finalize their forgiveness application,” wrote the senators, led by Sen. Sherrod Brown of Ohio, the top Democrat on the Banking Committee, and Minority Leader Chuck Schumer, D-N.Y., among others. “The government should simplify the process such that these experts are not necessary.” Businesses receiving PPP loans can qualify for full loan forgiveness if they spend at least 60% of the proceeds on payroll. Partial forgiveness is available for companies that spend less than that amount. Specifically, the senators are calling for a streamlined forgiveness process for small loan amounts, such as an easy-to-use form that requires a simple attestation on fund use and minimal documentation. The senators are also asking Treasury and the SBA to develop online tools, such as “how to” videos and reporting calculators, for small businesses to navigate the loan forgiveness process. And they are asking the two agencies to set up a “well-staffed” helpline for lenders and borrowers to talk through any challenges with the loan forgiveness process. They further urged the SBA and Treasury to move to the first page of the loan forgiveness application a section for reporting demographic information about Paycheck Protection borrowers. The section is currently on the last page.
Hospitals Got Bailouts and Furloughed Thousands While Paying C.E.O.s Millions Dozens of top recipients of government aid have laid off, furloughed or cut the pay of tens of thousands of employees. – HCA Healthcare is one of the world’s wealthiest hospital chains. It earned more than $7 billion in profits over the past two years. It is worth $36 billion. It paid its chief executive $26 million in 2019. But as the coronavirus swept the country, employees at HCA repeatedly complained that the company was not providing adequate protective gear to nurses, medical technicians and cleaning staff. Last month, HCA executives warned that they would lay off thousands of nurses if they didn’t agree to wage freezes and other concessions. A few weeks earlier, HCA had received about $1 billion in bailout funds from the federal government, part of an effort to stabilize hospitals during the pandemic. HCA is among a long list of deep-pocketed health care companies that have received billions of dollars in taxpayer funds but are laying off or cutting the pay of tens of thousands of doctors, nurses and lower-paid workers. Many have continued to pay their top executives millions, although some executives have taken modest pay cuts. The New York Times analyzed tax and securities filings by 60 of the country’s largest hospital chains, which have received a total of more than $15 billion in emergency funds through the economic stimulus package in the federal CARES Act. The hospitals – including publicly traded juggernauts like HCA and Tenet Healthcare, elite nonprofits like the Mayo Clinic, and regional chains with thousands of beds and billions in cash – are collectively sitting on tens of billions of dollars of cash reserves that are supposed to help them weather an unanticipated storm. And together, they awarded the five highest-paid officials at each chain about $874 million in the most recent year for which they have disclosed their finances. At least 36 of those hospital chains have laid off, furloughed or reduced the pay of employees as they try to save money during the pandemic….
A Maine factory says it will have to discard all coronavirus swabs made during Trump’s factory tour –Puritan Medical Products, a medical swab manufacturer, says it will have to discard all of the swabs made in the background of President Donald Trump’s visit to the factory on Friday. While workers on the factory floor wore lab coats and personal protective equipment, Trump did not wear a mask while touring the facility or visiting with employees. In a statement to USA TODAY, Puritan did not disclose either its reasoning for dumping the coronavirus swabs or the number of coronavirus tests that would be lost. Puritan, which the White House said received nearly $80 millionfrom the federal government to double its production capacity, is one of only two companies in the world that make the kind of swabs needed in coronavirus testing.
House Dems unveil $494B transportation infrastructure bill – Moves to reauthorize the Fixing America’s Surface Transportation Act (FAST Act) ramped up Wednesday as House Democrats unveiled a new $494 billion plan for the nation’s transportation. The FAST Act, which expires on Sept. 30, provides long-term funding to surface transportation infrastructure like highways, vehicle safety and public transit. In preparation of this expiration, leading Democrats on the House Transportation and Infrastructure Committee got the ball rolling on the Investing in a New Vision for the Environment and Surface Transportation in America (INVEST in America) Act, which would authorize an additional $494 billion over five years for infrastructure needs. That proposal, which they called a “key component” of Democrats’ Moving Forward Framework infrastructure plan, would spend $411 billion from the Highway Trust Fund on improvements to highways, transit, safety and research, and $60 billion on rail. Those figures represent a 46% and 400% increase, respectively, over current spending levels under the FAST Act.A major tenet of the INVEST in America Act is restoring the nation’s transportation infrastructure to a state of good repair, in part by addressing transit’s $100 billion maintenance backlog. The bill also provides grants for alternative fuels and electrification, and looks to address the effects of climate change through enhancing resiliency and using more modern building materials.”It would be a dereliction of duty if we were not referencing climate change in a 21st-century transportation bill,” Subcommittee on Highways and Transit Chair Eleanor Holmes Norton, D-DC, said on a call with reporters. The bill would also provide funding to Complete Streets programs in a bid to enhance street safety, and would provide $250 million in grants to encourage local governments to innovate and cut congestion. The bill is expected to be marked up in committee in two weeks, then hit the House floor for a vote in early July. But Republicans on the committee are unconvinced by the plan, calling it “partisan” and saying it would add uncertainty to transportation given the disruption of COVID-19, among other problems. “[T]oday’s partisan bill lacks critical flexibility for the states, its outsized funding increases for urban areas will leave rural America even further behind, and numerous new green mandates and extreme progressive goals are woven throughout the fabric of new and existing core programs,” Republican committee and subcommittee leaders wrote in a joint statement.
America’s billionaire wealth jumps by over half a trillion during COVID-19 pandemic: report (Reuters) – The combined wealth of America’s billionaires, including Amazon.com Inc founder Jeff Bezos and Facebook Inc CEO Mark Zuckerberg, jumped over 19% or by half a trillion since the onset of the COVID-19 pandemic in the United States, according to a report published by the Institute for Policy Studies (IPS). During the 11 weeks from March 18, when U.S. lockdowns started, the wealth of America’s richest people surged by over $565 billion, while 42.6 million workers filed for unemployment, the report said. “These statistics remind us that we are more economically and racially divided than at any time in decades,” said Chuck Collins, a co-author of the report. During the 11 week period, Bezos saw his wealth soar by about $36.2 billion while Zuckerberg’s fortune surged by about $30.1 billion. Tesla Inc (TSLA.O) Chief Executive Elon Musk’s net worth also rose $14.1 billion. The past week also saw the wealth of U.S. billionaires jump by $79 billion, according to the report.
‘Banks are the infrastructure’: OCC leader on pandemic, recovery, CRA – – Brian Brooks was handed the leadership baton at the Office of the Comptroller of the Currency at a time when banks grapple with the economic fallout from the coronavirus pandemic, and the nation as a whole tries to deal with its racial divisions.One of Brooks’s first actions as acting comptroller was sending a letter to mayors and governors warning them about the risks that “essentially indefinite” lockdowns – intended to combat the spread of the pandemic – could have on the economy and in turn national banks. The move drew a rebuke from House Financial Services Chairwoman Maxine Waters.In an interview with American Banker, Brooks described how the national banking system as well as policies such as reforming the Community Reinvestment Act can be forces for good during such a tumultuous time.“Banks are the infrastructure the rest of society is built on, and we need them to be strong and sound and do that work,” said Brooks, who has spent time as a banker as well as the top lawyer at Coinbase and Fannie Mae.Brooks discussed some of his ambitious plans for the agency in the months ahead, including his intent to defend the OCC’s authority to issue bank charters for fintechs. “At the OCC, our main job – and a job that only we have – is to charter banks. The OCC has, historically, been a statutorily authorized agency to say what a bank is for any given generation,” Brooks said. “We understand absolutely where we have to collaborate with the other agencies. But we also know there’s a certain role that only we play, and that is determining what a bank is in any given generation.”Brooks also reflected on the death of George Floyd, which has sparked nationwide protests over policing policies and racial inequities. The acting comptroller argued that the OCC’s now-finalized plan to reform the Community Reinvestment Act could be a critical component of expanding access to the banking system to people who have been historically denied it.“There are different views of the Community Reinvestment Act,” Brooks said. “But I do think that people of goodwill can agree that if there’s one thing that the George Floyd tragedy teaches us is that not enough people have had enough access to the system that have made others of us better off, and we have to unblock those opportunities.”The following is from a conversation with Brooks that has been edited for length and clarity.
Fed sets date for release of 2020 stress tests, COVID-19 analyses – The Federal Reserve announced Tuesday it will publish the results from both of its annual stress tests June 25, as well as supplemental analyses to assess bank capital under different coronavirus-related scenarios.Thirty-four banks – each with more than $100 billion of assets – are subject to the Fed’s Dodd-Frank Act stress tests and Comprehensive Capital Analysis and Review examinations this year. Unlike in previous years, the Fed will publish the results from both tests simultaneously. Banks subject to the stress tests are required to submit data from their balance sheets as of yearend 2019. The Fed tests those balance sheets against baseline and severely adverse scenarios. However, many have already discounted this year’s stress tests, noting that the current economic shock that has accompanied the COVID-19 pandemic is in many cases worse than the Fed’s hypothetical severely adverse scenario. Banks’ balance sheets are likely to have changed substantially since the end of 2019, before the onset of the coronavirus. But the Fed had said previously it would conduct “sensitivity analyses” to examine banks’ responses to the pandemic. That addendum will consist of “alternative scenarios and certain adjustments to portfolios to credibly reflect current economic and banking conditions.”Under normal circumstances, the standard stress test results dictate a firm’s planned capital distributions for the year. Some have speculated that the Fed could use the supplemental sensitivity analyses to inform decisions on capital distributions.
How long will banks have to keep padding loan-loss reserves? – Credit-related costs could weigh on banks’ bottom lines into at least early next year.That was one of the key takeaways from banker presentations at a virtual investor conference hosted by Morgan Stanley this week.Banks set aside billions in loan-loss provisions in the first quarter to cushion the economic blow dealt by the coronavirus pandemic. With the end of the second quarter less than three weeks away, executives warned that the buildup isn’t over. “Fundamentally, our credit remains sound. However the economic outlook has deteriorated since quarter-end and remains highly uncertain,” Huntington Bancshares Chief Financial Officer Zach Wasserman said Wednesday. “This will result in elevated provisioning and additional reserve building in the second quarter and most likely for the next few quarters.” Investors got the message. Huntington shares dropped more than 5% on Wednesday, a day when the overall market was off about 1%. Shares of Wells Fargo fell nearly 9%, and U.S. Bancorp’s declined 6.6%, after they issued similar outlooks.Despite a rosier than expected unemployment report for May and the reopening of local economies around the U.S., internal forecasts that banks are using to map out the rest of the year are still indicating trouble ahead, said Brian Klock, an analyst at Keefe, Bruyette & Woods.“The cadence has been that the second quarter will be the high water mark” for provisions, Klock said in an interview.Yet banks are expected to continue tacking on provisions even into 2021 as the economy tries to pull out of this monthslong standstill. Banks may not start taking off reserves until 2022, Klock said. Klock added that loan charge-offs are expected to peak in the fourth quarter when forbearance periods granted in recent months run out and emergency loans to small businesses come due. Throw in the possibility of a second wave of COVID-19 cases this fall, and predictions for how much a bank will ultimately need to guard against potential losses become little more than a guessing game.
Are banks doing enough to fight unemployment benefit fraud? – When state governments began expanding unemployment benefits for people affected by the coronavirus quarantine in March, fraudsters quickly got to work trying to steal the aid.About 10% of unemployment insurance payments are improper under the best of times, “and we are in the worst of times,” Scott Dahl, the inspector general for the U.S. Labor Department, told the House subcommittee on government operations on June 1. Dahl estimated that at least $26 billion in benefits could be wasted, most of it going to scammers pretending to be deserving citizens who lost their jobs. Florida, Massachusetts, North Carolina, Oklahoma, Rhode Island, Washington and Wyoming have all been hit with unemployment fraud, according to the security research firm Agari. The state of Washington has been hit the hardest. On Thursday, state officials said they had clawed back about $333 million of the estimated $550 million to $650 million made to fraudsters. Banks and prepaid card providers are said to be unwitting participants in the phony transactions. Unemployment insurance is deposited in bank and prepaid accounts set up by money mules who, knowingingly or not, are helping the scammers.One of the big questions is: Are banks doing enough to stop this from happening? Agari says it first discovered Scattered Canary, which it describes as a West African-based fraud ring behind most recent unemployment fraud, when the group impersonated a senior Agari executive in an email to the firm’s chief financial officer and tried to trick him into sending a wire transfer. This type of email attack, which is called business email compromise, is a specialty of the group.Scattered Canary typically assumes the identities of people who are still employed and therefore won’t notice that they’re not receiving unemployment benefits, and apply for unemployment insurance in their name. The fraudsters obtain the basic information they need to apply in three ways:
- They sometimes buy it on the dark web, where the ill-gotten gains of past data breaches are available for sale.
- They conduct business email compromise campaigns in which they send a convincing email that appears to be from a colleague asking for information.
- And they seek tax-filing-related data, impersonating a high-ranking executive such as the CEO of a company in an email asking employees to provide their W-2 documents immediately. Sometimes they simply look up public records to get the information they need.
Once a state government has accepted their applications, the fraudsters arrange to have the unemployment pay deposited into an account they’ve set up or more likely, that of a money mule they’ve recruited. Sometimes they get people to act as mules through a romance scam, in which they pretend to be a love interest. In some cases, the mules are allowed to keep 10% or 20% of the proceeds. One victim realized her identity had been used to file for unemployment benefits in mid-May when her state government sent her a request to verify her identity. That same day, she received prepaid cards from Netspend and GreenDot in the mail. She realized that fraudsters had concurrently opened up prepaid accounts in her name with Netspend and Green Dot and immediately reported the fraud to both companies and the government. The fraudsters probably planned to use virtual card numbers issued by the companies to collect the money, but they used the target’s actual address in their application. If they had thought it through, they probably would have provided a post office box.
As PPP deadline approaches, a few lenders make a final push – As most banks and credit unions shift focus from making Paycheck Protection Program loans to having them forgiven, a few lenders continue aggressively pursuing new originations. The number of loans made under the program has increased just 4.6% since May 16, to about 4.5 million, while aggregate volume is down slightly after some earlier loans were returned. About $131 billion in PPP funding remains, according to the Small Business Administration. Against that backdrop, lenders like Customers Bancorp in Wyomissing, Pa.; Cross River Bank in Fort Lee, N.J.; and Fountainhead Capital in Lake Mary, Fla., are still looking to make as many loans as possible before the looming June 30 deadline for applications. Fountainhead, a nonbank lender, is turning a small profit on its originations at a time when demand for traditional SBA loans is tepid, said CEO Chris Hurn. “It’s definitely the big game in town,” Hurn said. Active participation represents a change of heart for Hurn, who was sharply critical of the program’s initial rollout. He said the process has become smoother during PPP’s second phase. “It definitely got off to a rocky start, but round two has been better,” Hurn said. Fountainhead is on pace to make about 2,500 program loans by the time the program’s origination window closes. It has purchased another 2,500 loans from other PPP lenders. “The play for us is to buy them at a discount, then bet that the forgiveness process will be less cumbersome,” Hurn said. “We’re comfortable with the asset. I’m not crazy about the [1%] interest rate, but with the cost of funds as low as it is [borrowing through the Federal Reserve’s Paycheck Protection Program Liquidity Facility], I’ve got a positive rate of carry. We’re making a little money.” Lenders caught a few breaks last week when a newly enacted law allowed for more non-payroll-related spending and expanded the covered period for forgiveness from eight to 24 weeks. The $12 billion-asset Customers has made more than 80,000 Paycheck Protection loans. Its originations jumped from $380 million in the program’s first round to more than $4.6 billion in the second phase.The Paycheck Protection Program was included in the $2.2 trillion coronavirus stimulus program that was signed into law March 27. Small businesses with 500 or fewer employees can borrow up to $10 million.
MBA Survey: “Share of Mortgage Loans in Forbearance Increases to 8.53%” of Portfolio Volume – Note: To put these numbers in perspective, the MBA notes “For the week of March 2, only 0.25% of all loans were in forbearance.” From the MBA: Share of Mortgage Loans in Forbearance Increases to 8.53%: The Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance increased from 8.46% of servicers’ portfolio volume in the prior week to 8.53% as of May 31, 2020. According to MBA’s estimate, almost 4.3 million homeowners are now in forbearance plans…. “The overall share of loans in forbearance increased by only 7 basis points compared to the prior week. With the job market beginning to gradually improve, more homeowners are exiting forbearance, and we are seeing declines in forbearance volume among some servicers,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “However, this week’s findings did reveal divergence among servicers. The share of loans in forbearance decreased for depository servicers but continued to increase for IMBs.” Added Fratantoni, “While servicers reported only a 1-basis-point increase in the forbearance share for GSE and Ginnie Mae loans, the increase for private-label securities and portfolio loans rose to over 10 percent, which is higher than the rate on GSE loans.” The MBA notes: “Forbearance requests as a percent of servicing portfolio volume (#) dropped across all investor types for the eighth consecutive week relative to the prior week: from 0.20% to 0.17%.”
What happens to struggling homeowners when CARES Act relief ends? – Congress tried to address the immediate financial hit of the coronavirus on homeowners when it passed a sweeping $2 trillion stimulus package in March, but lawmakers are increasingly focused on the potential economic burdens facing mortgage borrowers when many of the legislative provisions expire as early as July.A Senate Banking Committee hearing Tuesday with two housing policymakers focused in part on what happens to borrowers when relief such as loan forbearance plans and enhanced unemployment compensation end.”We have to extend unemployment compensation, because many of the people who are still paying [their loans back] are doing so only because they’re getting enhanced unemployment compensation,” said Sen. Jack Reed, D-R.I. The Coronavirus Aid, Relief and Economic Stability Act added $600 a week for unemployment insurance, provided homeowners with a 60-day foreclosure moratorium on federally backed properties, froze evictions of for 120 days on federally backed multifamily properties, and allowed borrowers with a government-backed mortgage to request up to 12 months of forbearance if they have encountered financial hardship because of COVID-19. Lawmakers grilled Federal Housing Finance Agency Director Mark Calabria and Department of Housing and Urban Development Secretary Ben Carson on the possibility of an imminent housing cliff approaching in August, with fear evident on both sides of the aisle but no clear consensus about what comes next. “We have already seen a huge number of mortgage borrowers enter forbearance, while many landlords are struggling to make ends meet, and countless renters are unsure whether they will be able to make their next payment,” said committee Chairman Mike Crapo, R-Idaho. While Calabria and Carson spoke positively about the performance of the housing market during the pandemic thus far, the two also underscored the uncertainties going forward and hesitated to give an “all clear.” “It’s obviously going to be very important for us to monitor the situation, see how much recovery is going on, and obviously we are not going to sit idly by and watch millions of Americans suffer for something that’s not their fault,” Carson said. The CARES Act did not specify how or when borrowers would make skipped payments after a forbearance period ends, but numerous agencies and some servicers have suggested homeowners can wait the whole the life of the loan.
Black Knight: Number of Homeowners in COVID-19-Related Forbearance Plans Declines Slightly for the second consecutive week – Note: Both Black Knight and the MBA (Mortgage Bankers Association) are putting out weekly estimates of mortgages in forbearance. From Black Knight: The number of homeowners in active forbearance on their mortgages fell for the second consecutive week. Overall, the number of active forbearance plans is down 77K from last week, and 112K from the peak the week of May 22. As of June 9, 4.66 million homeowners remain in forbearance plans, representing 8.8% of all active mortgages, down from 8.9% last week. Together, the 4.66M represent just over $1 trillion in unpaid principal ($1,028B). Some 7% of all GSE-backed loans and 12.2% of all FHA/VA loans are currently in forbearance plans. GSE loans saw the greatest reduction, with forbearances falling by 47K week-over-week, but decreases were seen across all investor classes – as compared to last week, which saw a decline among government-backed mortgages partially offset by a rise in portfolio and PLS mortgages.
Black Knight Mortgage Monitor for April – Black Knight released their Mortgage Monitor report for April today. According to Black Knight, 6.45% of mortgages were delinquent in April, up from 3.47% in April 2019. Black Knight also reported that 0.40% of mortgages were in the foreclosure process, down from 0.50% a year ago. This gives a total of 6.85% delinquent or in foreclosure.Press Release: Black Knight: Just One in 10 Homeowners in Forbearance Hold 10% or Less Equity in Their Homes; Share Much Higher Among FHA/VA Loans As Black Knight reported on June 5, forbearance volumes fell for the first time since the crisis began between May 26 and June 2. As Black Knight Data & Analytics President Ben Graboske explained, the focus of industry participants – especially servicers and mortgage investors – must now shift from pipeline growth to pipeline management and downstream performance of loans in forbearance. The good news is that equity positions among homeowners in forbearance are by and large strong. Nearly 80% of homeowners in active forbearance have 20% or more equity in their homes, providing homeowners, servicers and regulators with options for helping to avoid downstream foreclosure activity and default-related losses. Just 9% have 10% or less equity – typically enough to cover the cost of a sale of a property – with another 1% underwater on their mortgages. Of course, this leaves a population of nearly half a million homeowners who may lack the necessary equity to sell their homes to avoid foreclosure in a worst-case scenario. Just 22% of those in forbearance as of May 26 have made their May payment, signaling another rise in the national delinquency rate is likely to be reflected in May’s data. With expanded unemployment benefits set to end on July 31, it remains to be seen what impact that may have on both forbearance requests and overall delinquencies.” Here is a graph from the Mortgage Monitor that shows the National Delinquency Rate. From Black Knight:
• Just three months after hitting a record low in January 2020, the national delinquency rate is now at its highest level since 2013
• After falling more than 1.5% below its pre-Great Recession average in early 2020, the national delinquency rate is now 2.25% above that benchmark and may be poised to climb higher in May
• April’s rise – the largest single-month increase on record – was nearly 3X the previous record from November 2008, during the heart of the Great Recession
• During the Great Recession, it took more than two years for the national delinquency rate to increase by the 3.1% seen in April 2020 alone
The second graph shows the number of active forbearance plans:
Mortgage credit availability hits a 6-year low – Mortgage credit availability has tightened to the lowest level in six years as looming doubts about the strength of a coronavirus-impacted housing market caused originators’ appetite for risk to wane. The Mortgage Banker Association’s Mortgage Credit Availability Index slid for the sixth consecutive month, falling 3.1% to 129.3 in May from 133.5 in April and 189.5 the year before. This is the tightest credit’s become since June 2014. Moves by the GSEs have likely contributed to the tightening of credit since, in early May, Fannie Mae and Freddie Mac suspended bulk sales and limited their remaining secondary market purchases in order to curb negative financial impacts from the pandemic.”Mortgage lenders in May responded accordingly to the increased risk and uncertainty in the economy,” Joel Kan, the MBA’s associate vice president of economic and industry forecasting, said in a press release. “There was a reduction in supply across all loan types, driven by further pullback in investors’ appetites for loan programs with low credit scores and high LTVs. Credit tightening was observed at both ends of the market, with less availability of low down payment programs designed for first-time homebuyers, as well as for conforming and nonconforming jumbo loans.”By product segment, the conventional MCAI fell 5.7% from April, driven by a 6.9% drop in the conforming product component, while the jumbo index declined 4.4%.Meanwhile, the government MCAI, which measures Federal Housing Administration, Veterans Affairs and U.S. Department of Agriculture products, fell by 0.8%. Government mortgage credit availability has tightened most months since April 2017. The MBA calculates MCAI using loan program data from Ellie Mae’s AllRegs Market Clarity database with a benchmarked value of 100 based on conditions in March 2012.
NMHC: Rent Payment Tracker Finds Most People Paying Rent in June –From the NMHC: NMHC Rent Payment Tracker Finds 80.8 Percent of Apartment Households Paid Rent as of June 6 The National Multifamily Housing Council (NMHC)’s Rent Payment Tracker found 80.8 percent of apartment households made a full or partial rent payment by June 6 in its survey of 11.5 million units of professionally managed apartment units across the country. This is a 0.7-percentage point decrease in the share who paid rent through June 6, 2019and compares to 80.2 percent that had paid by May 6, 2020. These data encompass a wide variety of professionally managed market-rate rental properties across the United States, which can vary by size, type and average rental price.“These are trying times for the country, and we are reminded on a regular basis how crucial safe and secure housing is during a period of uncertainty and upheaval, so we are glad to see that residents who live in professionally managed properties continue to pay their rent,” said Doug Bibby, NMHC President. “While our Rent Payment Tracker metric continues to show the resilience and strength of the professionally managed apartment industry, it does not necessarily tell the whole story, as it doesn’t capture rent payments for smaller landlords or for affordable and subsidized properties, and according to Harvard, more than half of renters with at-risk wages due to the pandemic live in single-family and small multifamily rentals with 2 – 4 units.” CR Note: It appears people are still paying their rent at about the same rate as last year (down just 0.7 percentage points from a year ago). The disaster relief has been key to helping people pay their bills, especially the extra unemployment benefits and the PPP.
Hotels: Occupancy Rate Declined 45.3% Year-over-year, Eighth Consecutive Week of Slightly Higher Demand – From HotelNewsNow.com: STR: US hotel results for week ending 6 June: STR data ending with 6 June showed another small rise from previous weeks in U.S. hotel performance. Year-over-year declines remained significant although not as severe as the levels recorded previously. 31 May through 6 June 2020 (percentage change from comparable week in 2019):
• Occupancy: 39.3% (-45.3%)
• Average daily rate (ADR): US$85.01 (-35.9%)
• Revenue per available room (RevPAR): US$33.43 (-65.0%)
“Not much different from previous weeks, occupancy continued to climb toward the 40% mark with noticeably higher levels on Friday and Saturday,” said Jan Freitag, STR’s senior VP of lodging insights. “The lower end of the market continued to lead, with economy properties finally selling more than half of their rooms again, although all hotel classes were comfortably above 20%. Drilling down to the submarket level, the highest occupancy levels were recorded in various pockets of New York City as well as popular leisure spots in Florida, Texas and South Carolina. Thanks to higher demand, one submarket, West Palm Beach, showed a 21.0% year-over-year ADR increase for the entire week. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average. The red line is for 2020, dash light blue is 2019, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels). Usually hotel occupancy starts to pick up seasonally in early June. So even though the occupancy rate was up slightly compared to last week, the year-over-year decline was actually worse this week than last week (45.3% decline vs. 43.2% decline last week).
Fed’s Flow of Funds: Household Net Worth Decreased $7.4 Trillion in Q1 — The Federal Reserve released the Q1 2020 Flow of Funds report today: Flow of Funds.The net worth of households and nonprofits fell to $110.8 trillion during the first quarter of 2020. The value of directly and indirectly held corporate equities decreased $7.8 trillion and the value of real estate increased $0.4 trillion. Household debt increased 3.9 percent at an annual rate in the first quarter of 2020. Consumer credit grew at an annual rate of 1.6 percent, while mortgage debt (excluding charge-offs) grew at an annual rate of 3.2 percent.The first graph shows Households and Nonprofit net worth as a percent of GDP. Even with the decline in stock prices in March, household net worth, as a percent of GDP, was higher than the peak in 2006 (housing bubble), and above the stock bubble peak. Net Worth as a percent of GDP decreased in Q1. This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations. This graph shows homeowner percent equity since 1952.Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008. In Q1 2020, household percent equity (of household real estate) was at 64.8% – up from Q4. Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have less than 64.8% equity – and about 1.82 million homeowners still have negative equity.
U.S. Households’ Net Worth Had Record Fall in First Quarter – WSJ – The net worth of U.S. households saw a record decline in the first three months of this year as the coronavirus pandemic sent shock waves through the economy and caused equity prices to plummet. Household net worth fell 5.6% in the first quarter from the previous three months to a seasonally adjusted $110.79 trillion, the Federal Reserve said Thursday. That was the largest single-quarter drop in records going back to the early 1950s. The figures, published in a quarterly Fed report known as Flow of Funds, show the beginning of the pandemic’s impact on the U.S. economy, which entered a recession in February. Gross domestic product contracted at an annualized rate of 5% in the January-to-March period, as lockdowns prompted consumers to reduce spending and companies to hold back investment. The downturn deepened in the second quarter, economists say, as companies and governments laid off more than 20 million people in April. Most of the decline in household net worth in the first quarter resulted from a $7.8 trillion drop in the value of directly and indirectly held corporate equities, the Fed said Thursday. Fears about the virus and its impact on the economy, as well as a severe liquidity shortage in swaths of the financial system, caused the Dow Jones Industrial Average to fall some 23% in the first quarter, decimating household investment portfolios. Corporate debt excluding financial companies posted its sharpest quarterly increase on record, rising 4.7% to $16.81 trillion, the Fed said. Companies took advantage of low rates to build up cash buffers amid falling sales and looming uncertainty. While the report showed that federal government debt rose 3.6% to $19.74 trillion in the first quarter, it didn’t capture most of the roughly $3.3 trillion of tax cuts and spending that Congress authorized in March and April to fight the coronavirus and its economic effects. Since April, the Treasury Department has issued $267 billion of stimulus checks to nearly 159 million households. In addition, workers laid off during the pandemic began receiving an extra $600 a week in unemployment benefits, a program that, as of May, had disbursed another $91 billion.
Consumers ‘More Optimistic’ About Economy’s Future in May, New York Fed Says — Americans are growing more upbeat about what lies ahead for the economy, even as they brace for what they see as a rise in inflationary pressure, a new report from the Federal Reserve Bank of New York said Monday. “Consumers grew comparatively more optimistic about labor market outcomes with earnings growth, job finding, and job loss expectations all slightly improving,” the bank said in its May Survey of Consumer Expectations. But the bank noted that whatever improvement there has been, key readings in the survey still remain “far below” where they were before the coronavirus pandemic took hold earlier this year. The New York Fed found households’ expectations of inflation on the move. Projections of where inflation will be a year from now jumped from 2.6% in April to 3% last month, even as expected inflation three years from now held steady at 2.6%. The report noted there is considerable uncertainty around the inflation outlook and households are bracing for “sharp” gains in food and energy costs. The inflation reading might cause some concern for the Fed. With the pandemic slamming economic activity and forcing an unprecedented support effort from the central bank and government, Fed officials have been confident that already tepid inflation pressures will remain low. But they also have said they would be keeping an eye on inflation expectations, because a rise there could signal real-world price pressures might prove stronger than expected. The New York Fed survey arrives in the wake of the May jobs report. While that still showed unemployment at levels not seen in the post-World War II period, that data nevertheless showed an unexpected surge in payrolls as parts of the country are starting to reopen to business. Some of that was reflected in the New York Fed data. It showed a “significant decline” in expectations that the unemployment rate will be higher a year from now. Expectations of losing a job declined, while expectations of finding new work rose, the report said. The New York Fed said consumers’ view of their personal finances remained “depressed” in May but showed some improvement. Nearly half of respondents said credit is harder to get, but the median expectation of household income growth a year from now ended a three-month declining streak, and climbing to 2.1% in May from 1.9% in April, the bank said.
U.S. Consumer Sentiment Rebounded in Early June – Americans’ view of the economy improved in early June as the country continued to reopen while trying to contain the coronavirus pandemic, according to a University of Michigan survey released Friday. The survey’s index of consumer sentiment rose to 78.9 in the two weeks ended June 10, from 72.3 for the previous four weeks. Economists surveyed by The Wall Street Journal had expected a reading of 75.0. The index’s rise showed that a growing share of U.S. consumers expected the economy to improve, said Richard Curtin, the survey’s chief economist. “The turnaround is largely due to renewed gains in employment, with more consumers expecting declines in the jobless rate than at any other time in the long history of the Michigan surveys,” he said. The index of current conditions rose to 87.8, compared with 82.3 the prior month, while the expectations index climbed to 73.1, from 65.9 in May. Respondents’ views on the economy varied with their political-party affiliation. Consumer sentiment among Republicans jumped 11 points since May, compared with a 0.7 point rise among Democrats. The index of independents ticked up 7.2 points. However, nearly half of consumers said they expected another downturn, said Mr. Curtin, adding that a coronavirus resurgence was the most often cited cause among these respondents. The survey was conducted between May 27 and June 10. During that time, all 50 states had begun easing restrictions on businesses. Americans filed at least 3 million applications for unemployment insurance benefits over that two-week period.
BLS: CPI decreased 0.1% in May, Core CPI decreased 0.1% — From the BLS: The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in Mayon a seasonally adjusted basis after falling 0.8 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 0.1 percent before seasonal adjust ment.Declines in the indexes for motor vehicle insurance, energy, and apparel more than offset increases in food and shelter indexes to result in the monthly decrease in the seasonally adjusted all items index. The gasoline index declined 3.5 percent in May, leading to a 1.8-percent decline in the energy index. The food index, in contrast, increased 0.7 percent in May as the index for food at home rose 1.0 percent.The index for all items less food and energy fell 0.1 percent in May, its third consecutive monthly decline. This is the first time this index has ever declined in three consecutive months. Along with motor vehicle insurance and apparel, the indexes for airline fares and used cars and trucks declined in May. The indexes for shelter, recreation, medical care, household furnishings and operations, and new vehicles all increased. The all items index increased 0.1 percent for the 12 months ending May. The index for all items less food and energy increased 1.2 percent over the last 12 months; this compares to a 2.4-percent increase a few months ago (the period ending February). Overall inflation was at expectations in May. I’ll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.
Core and Overall Consumer Price Index Both Fall 0.1 Percent in May – Dean Baker -Over the last three months, prices of food in stores have risen 4.1 percent, compared to 0.7 percent for restaurants.Both the core and overall Consumer Price Index (CPI) dropped 0.1 percent in May. It was the third consecutive month of decline for both indexes. The overall CPI has fallen 1.3 percent over the three months since the pandemic began to have a major economic impact, while the core index has dropped 0.6 percent.The pandemic has had sharply divergent impacts, as would be expected. The price of food purchased in stores rose 1.0 percent in May, while restaurant prices only rose 0.4 percent. Over the last three months, the price of store-bought food has risen 4.1 percent, while restaurant prices have risen just 0.7 percent. Before the pandemic, restaurant prices were increasing 1-2 percentage points more rapidly than the price of store-bought food largely due to rising wages for restaurant workers.Hotel prices and airfares continued to plummet in May, dropping 1.8 percent and 4.9 percent, respectively. Hotel prices have fallen 16.7 percent over the last three months, while airfares are down by 29.5 percent. Apparel prices have also plummeted due to the pandemic, as people have hugely cut back their clothes purchases. Apparel prices fell 2.3 percent for the month and are down 8.8 percent since February.Gas prices were reported as again dropping in May, falling another 3.5 percent. They are now down 31.5 percent for the last three months. This drop will almost begin to be reversed in the June data, as world oil prices have substantially recovered from the lows hit in April and many measures show gasoline prices rising.[Graph]Auto insurance prices fell 8.9 percent in May, after dropping 7.2 percent in April. These declines reflect rebates that most insurers are giving customers due to the fact that accidents have sharply fallen as a result of less driving during the shutdowns. Auto insurance has a large weight in the CPI, accounting for 1.6 percent of the overall index and almost 2.0 percent of the core index. This is because the CPI uses a gross measure of insurance payments, rather than netting out the settlements paid to customers. It uses the opposite approach with health care insurance, where the index only measures administrative costs and profits, netting out the payments to providers.Health care insurance prices continued to rise rapidly in May, increasing 1.1 percent. They are now up 19.7 percent over the last year. The price of health care services more generally rose by 0.6 percent in May. They have risen by 1.6 percent over the last three months. There is no clear evidence of any changes in the pace of rental inflation, with both the rent proper and owners’ equivalent rent index rising 0.3 percent in May. Over the last year, they are up by 3.5 percent and 3.1 percent, respectively. New vehicle prices rose 0.3 percent in May, after being flat in April. They are down 0.3 percent over the last year. The May increase is likely the result of buyers coming back into the market with the shutdown ending and low inventories due to factory shutdowns.
Coronavirus Continues to Weigh on U.S. Consumer Prices – WSJ – U.S. consumer prices dropped for a third straight month in May as the coronavirus pandemic kept shoppers and travelers at home, but the rate of decline in inflation eased as the cost of groceries, rent and medical services rose.The consumer-price index, which measures what Americans pay for everything from alcohol to lawn mowers, fell a seasonally adjusted 0.1% in May after comparable declines of 0.8% in April and 0.4% in March, the Labor Department said Wednesday.Excluding volatile food and energy categories, so-called core prices fell 0.1% compared with a 0.4% decline in April, marking the first time that index has declined in three consecutive months, according to the Labor Department. Economists said the worst of the coronavirus-related hit to inflation should be over, with states reopening and shopping demand returning.“The narrow group of categories that’s really been driving the weakness for the last several months were places where activity wasn’t going on,” such as airfares, apparel, motor-vehicle insurance and hotels, said Stephen Stanley, chief economist at Amherst Pierpont Securities. In the 12 months through May, the consumer-price index rose 0.1%, the weakest year-over-year increase since September 2015. Core prices were up 1.2% on the year, the Labor Department said.Some categories posted outsize gains. Grocery costs climbed as shoppers prepared more meals at home during the pandemic. The cost of food bought for home consumption climbed 1% in May following April’s increase of 2.6%, which was the largest month-over-month jump in grocery prices since 1974.A report Wednesday from Mastercard SpendingPulse, which tracks both online and in-store spending with all forms of payment, found retail sales for May were down 5.6% year over year compared with a decline of 14.1% in April, suggesting the pandemic’s hit to consumer spending is beginning to lessen. The tally excludes automobiles. Clothing prices have declined sharply since March, as many malls and stores remained closed due to the pandemic. Apparel prices were down 7.9% on the year in May, according to the Labor Department, the steepest year-over-year decline in that category since December 1932, during the Great Depression.
May inflation steadies: meanwhile, an artificial all time high in “real” wages – In May, overall consumer prices declined by -0.1% (blue in the graph below), while consumer prices excluding energy (gas) rose +0.1% (red): Note that in 2015 when gas prices collapsed, prices otherwise continued to increase, showing the underlying strength of the economy. But in March and April of this year, even prices outside of gas declined, showing underlying weakness. This is a typical recessionary scenario. May’s increase in prices ex-energy may be a good sign. YoY inflation is now only +0.2%, while YoY inflation ex-energy is up +1.6%: Last month I didn’t look at “real” inflation-adjusted wages. As it turns out, an important milestone was made – but was totally an artifact of the relative decimation of lower wage jobs. “Real” inflation-adjusted wages for non-managerial employees rose to an all time high in April, finally surpassing the previous peak of January 1973: May declined -0.5% from the April peak. I suspect as more people are recalled to work, April will prove to have been a short-lived spike More importantly, here are “real” aggregate payrolls for all non-managerial employees YoY: This is the worst drop in the entire history of this series. That consumer prices steadied in May is a good sign. We will probably have to wait for the quarterly Employment Cost Index, which normalizes for the mix of jobs in the economy and won’t be released till the end of July, to find out what “really” has happened with wages during the pandemic.
May Producer Price Index: Core Final Demand Down 0.1% MoM – Today’s release of the May Producer Price Index (PPI) for Final Demand was at 0.4% month-over-month seasonally adjusted, up from a 1.3% decrease last month. It is at -0.8% year-over-year, up from -1.2% last month, on a non-seasonally adjusted basis. Core Final Demand (less food and energy) came in at -0.1% MoM, down from 0.2% the previous month and is up 0.3% YoY NSA. Investing.com MoM consensus forecasts were for 0.1% headline and -0.1% core.Here is the summary of the news release on Final Demand:The Producer Price Index for final demand rose 0.4 percent in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase followed declines of 1.3 percent in April and 0.2 percent in March. (See table A.) On an unadjusted basis, the final demand index decreased 0.8 percent for the 12 months ended in May.In May, the advance in the final demand index is attributable to prices for final demand goods, which climbed 1.6 percent. In contrast, the index for final demand services fell 0.2 percent.Prices for final demand less foods, energy, and trade services edged up 0.1 percent in May, following three consecutive declines. For the 12 months ended in May, the index for final demand less foods, energy, and trade services moved down 0.4 percent, the largest 12-month decrease since the index began in August 2013.Coronavirus (COVID-19) Impact on May 2020 Producer Price Index Survey Data The Producer Price Index (PPI) response rates for May were consistent with those of April and no changes in estimation procedures were necessary. Additional information is available at www.bls.gov/covid19/effectsof-covid-19-pandemic-on-producer-price-index.htm. More… The data for these new series are only constructed back to November 2009 for Headline and April 2010 for Core. Since our focus is on longer-term trends, we continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates. As this (older) overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.
U.S. import prices post largest gain in more than a year – U.S. import prices increased by the most in more than a year in May, driven by higher costs for petroleum products and food, which could further diminish fears of deflation as the economy battles a recession. The Labor Department said on Friday import prices rose 1.0% last month, the largest gain since February 2019, after falling 2.6% in April. Economists polled by Reuters had forecast import prices, which exclude tariffs, increasing 0.6% in May. In the 12 months through May, import prices decreased 6.0% after dropping 6.8% in April. The report followed data this week showing consumer prices falling moderately in May and producer prices rebounding. Deflation is a decline in the general price level, which is harmful during a recession as consumers and businesses may delay purchases in anticipation of lower prices. The National Bureau of Economic Research, the arbiter of U.S. recessions, declared on Monday that the economy slipped into recession in February. In May, prices for imported fuels and lubricants surged 20.5% after declining 31.0% in the prior month. Petroleum prices jumped 21.7% after plunging 32.6% in April. Imported food prices rebounded 2.2% last month after dropping 1.6% in April. Excluding fuels and food, import prices dipped 0.1% last month after falling 0.5% in April. The so-called core import prices declined 0.7% in the 12 months through May. The cost of goods imported from China was unchanged in May after gaining 0.1% in the prior month. Prices declined 1.0% year-on-year in May, the smallest drop since March 2019. The report also showed export prices increased 0.5% in May as higher prices for nonagricultural products offset lower prices for agricultural goods. That followed a 3.3% drop in April. Export prices declined 6.0% on a year-on-year basis in May after dropping 6.8% in April.
Wolf Richter: The Chilling Things Delta Said about the Airline Business, the 90% Collapse in Q2 Revenues, and Why Some Demand Destruction May Be “Permanent” – Delta Airlines came out with the mother of all revenue-warnings when it said in an SEC filing this morning that its revenues in the second quarter, ending June 30, would collapse by 90% compared to the second quarter last year. In addition to the collapse of demand, it has “experienced significant ticket cancellations” (refunds are counted as negative revenues), and it has waved change fees, which used to be a big profit center, and it is giving out “other refunds,” and they all “have negatively affected our revenues and liquidity, and we expect such negative effects to continue.” And it cannot predict the effects of this unpredictable future, not even the near-term effects. “The longer the pandemic persists, the more material the ultimate effects are likely to be,” Delta said. “It is likely that there will be future negative effects that we cannot presently predict, including near term effects.” It added a slew of dismal data points and warnings, along with the hoops it has already jumped through and still needs to jump through to stay in business, including billions of dollars in help from the taxpayer. It was a doom-and-gloom report that not even a sworn doom-and-gloomer would have been able to imagine not too long ago. Delta’s shares dropped 7.4% during regular hours, and another 7.0% after hours, to $29.40, after having already dropped 7.6% yesterday. It seems, some people knew yesterday what Delta would announce this morning. Over those two days combined, including after hours today, shares have plunged 20.3%. Delta’s 90%-revenue collapse in Q2 came even as travel restrictions have begun “to ease,” it said. In response to the collapse in demand, Delta has cut its capacity system-wide by 85%. As demand returns, it plans on rebuilding its flight schedule. This is an industry-wide problem. According to the TSA, checkpoint screenings at US airports – a measure of how many people are getting on a plane – were still down 86.1% yesterday, compared to the same weekday last year. This has been inching up only in tiny increments. TSA checkpoint screenings over the Memorial Day weekend were down around 87%.. During the worst days two months ago, screenings were down 95%: Delta said that “we believe” that there will be a “modest continued demand recovery, particularly with domestic leisure travel beginning to return as states lift shelter-in-place orders.” But it expects international demand to “lag” domestic demand.
Small Business Optimism Increased in May, “Bad news for job creation” –Most of this survey is noise, but there is some information, especially on the labor market. From the National Federation of Independent Business (NFIB): May 2020 ReportThe Small Business Optimism Index increased 3.5 points in May to 94.4, a strong improvement from April’s 90.9 reading. Eight of the 10 Index components improved in May and two declined. The NFIB Uncertainty Index increased seven points to 82. Reports of expected business conditions in the next six months increased 5 points to a net 34%, following a 24-point increase in April. Owners are optimistic about future business conditions and expect the recession to be short-lived..May Survey respondents reduced employment by 0.17 workers per firm in the prior three months, down from an addition of 0.09 workers per firm in the April report. … May’s survey was bad news for job creation. A seasonally-adjusted net 8 percent plan to create new jobs, up 7 points.Note that the “single biggest problem” is “poor sales”.This graph shows the small business optimism index since 1986.
COVID-19 Lockdowns Spark 41% Collapse In Black-Owned Businesses In America – Widespread lockdowns across the country shuttered many small businesses for months. Stores, factories, and many other companies closed due to government-enforced public health orders or because of a rapid shift in demand. A new report from the National Bureau of Economic Research (NBER) provides the first analysis of lockdown impacts on small businesses, makes a shocking discovery that African-American owned businesses plunged by 41%. NBER commissioned the new report titled “The Impact of Covid-19 on Small Business Owners: Evidence of Early-Stage Losses from the April 2020 Current Population Survey” — shows active business owners in the US declined by 3.3 million or 22% from February to April because of “unprecedented” economic impacts of lockdowns. The decline in small business owners was the “largest on record,” and losses felt across all industries. The report said African-American businesses were hit the hardest, recorded a 41% decline of black owners from February to April. Next were Latino owners, fell 32%, and Asian business owners dropped by 26%. Immigrant business owners plummeted 36%, and female-owned businesses fell by 25%. These findings of early-stage losses to small businesses, so far, outlines how minority businesses were crushed during the lockdowns. “The negative early-stage impacts on minority- and immigrant-owned businesses, if prolonged, may be problematic for broader racial inequality because of the importance of minority businesses for local job creation,” said the report’s author, Robert Fairlie of the University of California at Santa Cruz Department of Economics.In a separate report, we noted how the virus-induced economic downturn could result in at least 52% of small businesses closing up shop in the next six months. For readers, it’s essential to understand that nearly half of all US jobs originate from small businesses. This all suggests the quick economic recovery narrative pitched by the Trump administration and Wall Street is bullshit.
Weekly Initial Unemployment Claims decrease to 1,542,000 – The DOL reported: In the week ending June 6, the advance figure for seasonally adjusted initial claims was 1,542,000, a decrease of 355,000 from the previous week’s revised level. The previous week’s level was revised up by 20,000 from 1,877,000 to 1,897,000. The 4-week moving average was 2,002,000, a decrease of 286,250 from the previous week’s revised average. The previous week’s average was revised up by 4,250 from 2,284,000 to 2,288,250. The previous week was revised up. This does not include the 623,073 initial claims for Pandemic Unemployment Assistance (PUA). The following graph shows the 4-week moving average of weekly claims since 1971.
Initial jobless claims decline further, but continuing claims fail to make meaningful progress – Weekly initial and continuing jobless claims give us the most up-to-date snapshot of the continuing economic impacts of the coronavirus to the average worker. Twelve weeks after calamity first struck, the theme remains “less awful.” First, here are initial jobless claims both seasonally adjusted (blue) and non- seasonally adjusted (red). The non-seasonally adjusted number is of added importance since seasonal adjustments should not have more than a trivial effect on the huge real numbers: There were 1.542 million new claims , which after the seasonal adjustment became 1.537 million. This is a -355,000 decline from last week’s number, and the lowest so far since the virus struck – but still almost twice as bad as the worst week during the “Great Recession.” Since we are more than a month after some States “reopened,” these new claims primarily represent spreading second-order impacts. Unfortunately, the “less bad” trend has not continued in continuing claims, which lag one week behind. In the past three weeks, both the non-seasonally adjusted number (red), and the less important seasonally adjusted number (blue) have remained nearly stationary. This week the former declined by 339,000 to 20.929 million, but was 88,000 above the 20.841 reading of two weeks ago; while the latter declined by 179,000 to 18.920 million, 58,000 above its 18.861 reading two weeks ago: This tells us that the spreading new damage is about equal to the callbacks to work from various sectors “reopening.” On a more long-term note, historically continuing claims have peaked at the end of or just after the end of recessions. Here’s the graph showing that from the beginning of the series through 2009: Depending on what happens with the King of Coincident Indicators, industrial production, when it is reported next week, it is possible that the NBER could call an end to a very short recession. But since the virus has not gone away, and indeed new cases are increasing again, I suspect we may see renewed restrictions implemented in many parts of the country in the next few months.
While welcome gains, job losses since February still total 19.6 million – After falling by 22.1 million between February and April, payroll employment rose by 2.5 million in May. This is likely due to the fact that 31 states started lifting stay-at-home orders, or easing restrictions, within the reference period. While these are welcome gains (as long as the health consequences aren’t offsetting), jobs losses since February still total 19.6 million, and are currently 13% below its February level. It is imperative that policymakers do not take this as a sign that it’s time to stop providing necessary relief to workers, their families, and state and local governments. The economic pain will be long-standing without additional aid.Given the re-opening of the economy, it is not surprising that many of the job gains occurred in leisure and hospitality, construction, education and health services, and retail trade. Of particular concern are the public sector job losses. Employment continued to decline in government employment; local government education accounted for most of the decrease, with a loss of 310,000 jobs. Over the last three months, state and local government jobs have declined by 1.6 million, nearly half of them (759,000) in local government education (public K-12). These losses in public K-12 education are large, even when public schools were still in session, albeit from home, during the reference period. Further, it’s important to remember that public sector austerity in the recovery from the great recession meant that public school employment never regained its 2008 levels. Without sufficient relief to state and local governments, more cuts will come. The unemployment rate declined to 13.3% in May, but is still up a whopping 9.8 percentage points since February. The figure below illustrates how the economic devastation was widespread but did not hit groups equally. Even with the mild improvement in May, the unemployment rate of all groups is still higher than the highest level the overall unemployment rate hit at the height of the Great Recession, when it reached 10.0% in 2009. The unemployment rates are higher for Black workers and Hispanic workers than for white workers. Research has shown that historically higher unemployment rates, lower wages, higher poverty rates, and lower liquid savings make job losses even more devastating for African American workers and their families. The unemployment rate for Latina workers was significantly higher than any other group, hitting 19.0% in May.
Interpreting the unemployment numbers – The Bureau of Labor Statistics announced Friday that 2.5 million more Americans were working in May than in April. That’s the biggest monthly increase since 1946, both in terms of the number of workers and as a percentage of the workforce. The unemployment rate dropped from 14.7% in April to 13.3% in May, the biggest monthly drop since 1950. All this is very good news. But there are also indications that we are in a deeper hole than the headline numbers suggest. Here I explain why I believe the true unemployment rate in May was a number more like 19.8%. The strong employment report shocked many observers, since so many other indicators had been very discouraging. Bill McBride, as always incredibly insightful, suggested that the good news on employment may have come from small businesses rehiring in order to take advantage of the half a trillion dollars that has been lent through the Paycheck Protection Program.The New York Times and Marketplace quoted some business owners who said PPP funds made all the difference for them.Some analysts worry that PPP can’t be a sustained source of support for the labor market. But it doesn’t have to be. The whole idea was to keep workers on the payroll until customer demand picked back up as restrictions on activity begin to be relaxed. About half the May gains came from the leisure and hospitality sector. It’s hard to imagine that restaurants, bars, theaters, and hotels will see anything like their previous level of activity even after all official restrictions are lifted. And the employment gain in May did not come anywhere close to making up what was lost in April. But so far, so good. But there are some other details of the May employment report, particularly those coming from the separate survey of individual households, that are hard to square with available facts. According to the BLS survey of households, 21 million Americans were still unemployed as of the second week of May. But during that week, states reported that 2.7 million new people filed for unemployment compensation, in addition to the 24.9 million who were already collecting. Not everyone who is unemployed is eligible for compensation, and not everyone who is eligible applies. In a typical month, the number of people unemployed is about three times as big as the number collecting compensation. But now in May, the number collecting is somehow larger than the total number who are unemployed. The headline unemployment numbers do not seem consistent with what we know about how many people are collecting unemployment compensation.
Dentists’ offices are responsible for 10 percent of jobs regained last month — The economy is finally brushing up. In a twist that shocked many of the nation’s top economists, the U.S.’s May jobs report released Friday showed the country added 2.5 million jobs last month, lowering the unemployment rate from 14.7 percent to 13.3 percent. A large chunk of that gain stemmed from the health care industry, which regained 312,000 jobs between April and May. Around 244,000 of those jobs stemmed singularly from dentists’ offices, making that industry responsible for a full tenth of May’s jobs gains. As freelance business reporter Matthew Zeitlin noted, pretty much all of the job gains last month came from temporarily laid off workers heading back to work. The number of unemployed people on temporary layoff decreased by 2.7 million to 15.3 million in March, but the number of permanent job losses rose by 295,000 to 2.3 million in May. University of Michigan economist Justin Wolfers called the shrinking temporary job losses the “good news” of the May jobs report. And while there’s still some “bad news” in permanent job loss, it seems clear that the overall unemployment “hole isn’t getting any deeper.”
BLS: Job Openings decreased to 5.0 Million in April –From the BLS: Job Openings and Labor Turnover Summary The number of total separations decreased by 4.8 million to 9.9 million in April, the U.S. Bureau of Labor Statistics reported today. Despite the over the month decline, the total separations level is the second highest in series history. Within separations, the quits rate fell to 1.4 percent and the layoffs and discharges rate decreased to 5.9 percent. Job openings decreased to 5.0 million on the last business day of April. Over the month, hires declined to 3.5 million, a series low. The changes in these measures reflect the effects of the coronavirus (COVID-19) pandemic and efforts to contain it … The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. This series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. Note that hires (dark blue) and total separations (red and light blue columns stacked) are usually pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs – when it is below the columns, the economy is losing jobs. Jobs openings decreased in April to 5.046 million from 6.011 million in March. The number of job openings (yellow) were down 31% year-over-year. Quits were down 49% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for “quits”). Job openings decreased sharply in April, and hires were at a series low. Quits declined almost 50% YoY – as expected, a very weak report.
The U.S. economy remains in an enormous jobs deficit: The labor market was down 15.9 million jobs at the end of April (JOLTS data), and down 19.6 million at the middle of May (jobs data) – This morning, the Bureau of Labor Statistics (BLS) released Job Openings and Labor Turnover Survey (JOLTS) data for April, showing the second-highest number of job separations on record (March was the highest) and the lowest level of hires on record. One important thing to understand about JOLTS data is the timing. JOLTS data provide information from the end of one month to the end of the next, whereas the monthly employment numbers provide information from the middle of one month to the middle of the next. The JOLTS data showed that 6.4 million jobs were lost from the end of March to the end of April. The monthly employment numbers straddle these numbers, showing that 20.7 million jobs were lost from mid-March to mid-April, and 2.5 million jobs were gained from mid-April to mid-May. Together, the JOLTS data and the monthly employment numbers paint a picture of the peak of job loss in this recession being in late March or early April, and people beginning to go back to work by the beginning of May. But no matter how you measure it, the U.S. economy remains in an enormous jobs deficit – we were down a total of 15.9 million jobs at the end of April (according to the JOLTS data), and down a total of 19.6 million at the middle of May (according to the monthly employment data). The human suffering and lost productive potential represented by these numbers is immeasurable. Congress must act by extending the expanded unemployment insurance benefits until the labor market sufficiently recovers and provide additional aid to state and local governments, which continued to face job losses in May and most certainly will face even more drastic budget cuts without more assistance. In the pre-coronavirus period, there were typically around 1.8 million layoffs every month as a result of natural churn in the labor market. In April, there were 7.7 million layoffs. This is nearly three times the worst month of the Great Recession. Before the coronavirus, there were also typically around 5.9 million hires every month, as businesses started up or expanded. In April, that dropped to 3.5 million, a 40% drop from the pre-virus period, as business formation and growth cratered. Pre-coronavirus, there were typically around 3.5 million voluntary quits each month. A large number of quits signifies a healthy labor market where people can leave their job to find one that is better for them. In April, quits dropped to 1.8 million – a 50% drop from the pre-virus period. And it’s likely quits would have dropped even further if not for the fact that people who had to, for example, leave a job to take care of a child whose school closed as a result of the virus are still counted as a voluntary quit.
Census: Household Pulse Survey shows 48.3% of Households lost Income; No improvement yet – From the Census Bureau: Measuring Household Experiences during the Coronavirus (COVID-19) PandemicThe U.S. Census Bureau, in collaboration with five federal agencies, is in a unique position to produce data on the social and economic effects of COVID-19 on American households. The Household Pulse Survey is designed to deploy quickly and efficiently, collecting data to measure household experiences during the Coronavirus (COVID-19) pandemic. Data will be disseminated in near real-time to inform federal and state response and recovery planning.…Data collection for the Household Pulse Survey began on April 23, 2020. The Census Bureau will collect data for 90 days, and release data on a weekly basis. This will be updated weekly, and the Census Bureau released the fifth week of survey results today. This survey asks about Loss in Employment Income, Expected Loss in Employment Income, Food Scarcity, Delayed Medical Care, Housing Insecurity and K-12 Educational Changes.
Fed Report Says Coronavirus Shock Has Hit Low-Wage Workers Hardest – WSJ – The Federal Reserve said severe disruptions in the U.S. labor market related to the coronavirus pandemic were hitting workers with lower earnings, including minorities, especially hard. Employment had fallen nearly 35% from February to mid-May for workers who were previously earning wages in the bottom fourth of wage earners, the central bank said Friday in its semiannual report to Congress. Higher-wage earners, by contrast, had seen employment fall by 5% to 15%. Because lower-wage earners are disproportionately African-American and Hispanic, unemployment has risen more sharply for those groups. “The path ahead is extraordinarily uncertain,” the report said. “The pace of recovery will ultimately depend on the evolution of the Covid-19 outbreak in the United States and abroad and the measures undertaken to contain it,” the Fed said, referring to the disease caused by the virus. Fed Chairman Jerome Powell said Wednesday, after the Fed’s policy meeting this week, that the central bank was preparing additional ways to support the economy after slashing interest rates to zero and purchasing trillions of dollars of government debt to improve financial market functioning. Officials this week projected they would hold rates near zero through 2022. Mr. Powell is scheduled to deliver the report and testify on Capitol Hill next Tuesday and Wednesday. The report said if economic activity remained weak due to virus-related disruptions, including because consumers aren’t confident to resume previous spending patterns even as states and counties lift stay-at-home orders, more businesses could fail or resume operations at a diminished scale, leading more temporary layoffs to become permanent.
Raimondo: Rhode Island students will return to school Aug. 31 – Governor Gina Raimondo said Wednesday that she expects all Rhode Island public schools to reopen on Aug. 31, but she acknowledged that students will have some distance learning days scheduled throughout the year. Gina Raimondo standing in front of a laptop: Rhode Island Governor Gina Raimondo and state education commissioner Angélica Infante-Green.© Kris Craig/Providence Journal Rhode Island Governor Gina Raimondo and state education commissioner Angélica Infante-Green. Raimondo also said schools “will look different” than they have in the past because of the coronavirus, with more cleaning, desks spread further apart, staggered start times, fewer students on buses at one time, and a mask requirement for most adults and many students. “We owe it to our children to have no disruption in their learning,” Raimondo said. The governor also said that individual infections should not force entire schools to close because the state now has a better ability to pinpoint cases and rapidly test those who have been exposed to the virus. The state also released a schedule that all districts will be required to follow, complete with an Aug. 31 start date, a week off in December for Christmas break, a week off each in February and April, and a tentative graduation date of June 4. While all districts are required to follow the same schedule, Education Commissioner Angélica Infante-Green said superintendents will be asked to submit plans to the state for how their schools will function at full capacity, in a hybrid model where there is some in-class learning and some distance learning, and in a fully remote setting. The state is setting aside $42 million in funding from the federal Coronavirus Aid, Relief, and Economic Security Act to assist districts with the increased expenses that will likely come from reopening, including changes to bus schedules and the need for more cleaning supplies.
35,000 sign petition to provide full funding to Randolph schools in Massachusetts – Randolph Public School District, located in a working-class area in the Greater Boston, Massachusetts region, has sent reduction in force (RIF) or nonrenewal notices to all of their arts, music, and physical education (PE) teachers, along with five social workers and six K-8 guidance counselors. These cuts, overseen by Superintendent Thea Stovell, have provoked a mass outcry. A petition to save the threatened programs has quickly amassed over 35,000 signatures, reaching its goal in only a week. A petition signer wrote, “This decision will have long term ramifications for the school, the culture of the community, and the quality of education will diminish greatly. By cutting these programs you are massively and irreparably destroying your students’ life experiences and learning opportunities.” The petition, addressed to Massachusetts State Senator Walter Timilty, describes the poor social conditions facing the town: “Randolph is a low-income district where funding has always been an issue, but the pandemic has made this far worse and allowed for the district to justify these extreme losses. The students of Randolph deserve a quality and well-rounded education, which would be impossible to give them without these essential parts of the curriculum… The Legislature is exploring a 10% or 20% local aid reduction for FY 21, which would be a drastic cut for Randolph.”State budgets across the US are facing massive cuts due to the economic crisis produced by the COVID-19 pandemic and the totally inadequate financial assistance given to states by the federal government, which stands in sharp contrast to the skyrocketing of the stock market back to its pre-pandemic heights.
Virtual charter schools and online learning during COVID-19 – Brookings – We recently published a peer-reviewed study in Educational Researcher in which we examine the effects of attending a virtual charter school in Indiana on student outcomes in grades 3-8. In the study, we analyze longitudinal student records provided by the Indiana Department of Education from 2011-2017. As of the 2016-17 school year, Indiana had 10,984 K-12 students enrolled in four virtual charter schools. Because the state maintains administrative records in concert with annual assessments (called the ISTEP), we were able to analyze the performance of students in virtual charter schools. We do this by identifying students who switch from traditional public schools to virtual charter schools. We match these students to their traditional public school classmates with similar characteristics (i.e., race/ethnicity, sex, poverty status, and achievement), and then compare their performance in virtual charter schools to their former peers.[1] We find the impact of attending a virtual charter on student achievement is uniformly and profoundly negative, equating to a third of a standard deviation in English/language arts (ELA) and a half of a standard deviation in math. This equates to a loss of roughly 11 percentile points in ELA and 16 percentile points in math for an average virtual charter student at baseline as compared to their public school peers (see Figure 1 above). There is no evidence that virtual charter students improve in subsequent years. We could not “explain away” these findings by looking at various teacher or classroom characteristics. We also use the same methodology to analyze the impact of attending brick-and-mortar charter schools. In contrast, we find that students who attended brick-and-mortar charters have achievement no different from their traditional public school peers (see Figure 2 below). Our confidence in these results is further buoyed by other studies of virtual charter schools in Ohio and nationwide having similar findings.
Colorado Bill Requires “Re-Education” For Parents Who Refuse The COVID-19 Vaccine – Colorado has introduced a bill that would “re-educate” parents who refuse to vaccinate their child with the coronavirus vaccine.The bill forces all doctors and medical staff to give vaccinations with no exemptions, even if they are in a situation where they believe it would not be in that child’s best interest. The bill’s current version, however, does not list any sanctions or punishments for medical staff that refuse, according to Life News. The bill just passed through a committee in Colorado (20-14) to reduce available exemptions on vaccinations for school-age children (making vaccines mandatory). This bill offers “online education modules” for parents who want a different vaccination schedule than what the state demands. Submitting a “certificate of completion” from the re-education classes is one way to receive the state-sanctioned vaccine exemption. This plandemic was never about health, it was about forcing everyone to get a vaccine: an injection of whatever the hell the ruling class decided to put in the vaccine.
The fate of international students in the US in the era of COVID-19 -Under the impact of the global COVID-19 pandemic, US higher education is facing a shakeout, with many colleges and universities expected to close whole departments or shutter entirely. This crisis makes the fate of the nearly 1.1 million international students attending US schools highly precarious. Alongside the Trump administration’s increasingly bellicose campaign to scapegoat China for its own criminal response to the pandemic, it is deliberately stoking up xenophobia against international students and workers throughout the US. Trump has recently escalated his anti-China campaign by considering a policy that would result in the expulsion of a significant portion of Chinese graduate students. Around 3,000 of the 360,000 Chinese students in the US would be affected by the policy. For students, educators, and scientists, the ability to collaborate with international students is not just valuable, but essential to move humanity and knowledge forward. Principled diversity in ideas and approach are the cornerstone of the intellectual and technological development of mankind. The treatment of these students by colleges in response to the pandemic has exposed the fact that they are primarily viewed as cash cows. Over 70 percent of US colleges expelled such students from university housing, with most under mandatory lockdowns and unable to fly home. There has been an explosion in the numbers of international students studying in the US over the past decade, rising from 2,540 newly-admitted students in 2009 to 18,304 in 2019. This has been closely tied to the rise of exorbitant and highly exploitative tuition fees. The University of California (UC), for example, charges $13,226 for students from California, whereas out-of-state and international students pay $42,218 for the very same classes. UC’s enrollment of 41,202 international students in 2019 generated $1.75 billion in tuition fees alone. In 2018, UC Irvine enrolled 6,615 international undergraduates, over double the number it accepted in 2013. Similarly, UC San Diego enrolled 8,473 in 2018, compared to 4,228 in 2013. The UC system is not unique. State universities tend to have the biggest discrepancies in the rates of international students, with Michigan and Penn State also leading the way. In other words, international students are an incredibly lucrative business. According to the US Department of Commerce, these students contributed $44.7 billion to the national economy in 2018 alone, a rise of 5.5 percent from the previous year..
Coronavirus, Economic Toll Threaten to Worsen Black Mortality Rates – WSJ -The new coronavirus pandemic and its economic fallout threaten to exacerbate mortality rates for African-Americans, which have risen in recent years for blacks in middle age. Blacks are dying at disproportionately high rates from the coronavirus, and their unemployment rate has tripled as a result of the pandemic. The financial stress, along with long-simmering racial tensions highlighted by the May 25 killing of George Floyd while in the custody of Minneapolis police, may compound stressors that have been shown to worsen the health of African-Americans, according to health experts and researchers. “I am concerned that given the current national climate we could see this trend of increasing mortality in middle-aged African-Americans continue,” said Monica Webb Hooper, deputy director of the National Institute on Minority Health and Health Disparities, who has studied the issue. Economists have drawn attention to a rise in death rates among middle-aged whites that helped push down U.S. life expectancy during the last decade. Blacks near the same age have seen an equally sharp rise in mortality. Between 2012 and 2017, death rates for black Americans ages 25 to 44 rose 21%, federal figures show. The level is identical to the mortality increase for whites in that age group over that time. That increase among blacks helped end more than a decade of progress on African-American mortality. Although black adults die at higher rates than whites and Hispanics, their mortality rate declined 22% between 2000 and 2012. The decline cut their death-rate gap with whites almost in half. Sally Curtin, a statistician at the Centers for Disease Control and Prevention’s National Center for Health Statistics, said that an increase in accidents including drug overdoses and traffic fatalities was a main driver of stalled mortality improvements among blacks aged 25 and over. African-Americans also have seen small increases in age-adjusted death rates for Alzheimer’s disease, strokes and suicide that started early in the last decade. Those trends were partially offset by lower death rates for cancer among blacks. Heart disease and cancer, respectively, are the leading causes of death for both black and white Americans; those killers rank in the opposite order for Hispanics. Assault including homicide is the seventh leading cause of death among blacks; it ranks 12th for Hispanics and 20th for whites. Death rates for assault among blacks have been rising since 2014 after almost a decade of leveling off. More than 20,000 black Americans have died of Covid-19, the disease caused by the coronavirus, accounting for 23% of all U.S. deaths, while African-Americans make up 12.5% of the population, according to NCHS. Black Americans are more likely to have chronic health conditions, reside in densely populated areas and live in multigenerational households – all of which make them more susceptible to the virus, researchers say. A black person born around 2017 on average will live 3.6 years less than whites and 6.9 years less than Hispanics, according to the most recent NCHS statistics.
China suspends debt repayment for 77 developing nations, regions – China has announced the suspension of debt repayment for 77 developing countries and regions as the nation is working with other G20 members to carry out the G20 debt relief initiative for low-income countries, Chinese officials said at a press briefing at the State Council Information Office on Sunday.China announced in May that it would provide $2 billion over two years to help other countries respond to the impact of the coronavirus pandemic.Ma Zhaoxu, Vice Minister of Foreign Affairs, said that the fund will not only include medical supplies, but also support other countries restart their economies and development. Ma made the comment at the press briefing to release the white paper titled “Fighting COVID-19 China in Action.” The fund includes both bilateral aid and multilateral donations, according to Ma.
China New Car Sales Fall 10% Year-Over-Year And 20% Sequentially For The First Week Of June – It’s going to be tough to peddle the narrative that things are back on an upswing with the auto industry in China after retail car sales fell 10% year over year – but more importantly 20% from the same period in May – in the first week of June. This comes after what looked like the beginning of a rebound for the industry in May, to the extent that we can trust the numbers coming out of Beijing. According to Bloomberg, China’s PCA now expects that retail sales will decline in June in part to what is being called “seasonal factors”. This news comes despite better than expected results in May, where sales showed a 12% increase year over year. According to The Detroit Bureau, premium and luxury passenger car retail sales led the charge in May, rising 28% last month compared with year-ago results. Those vehicles accounted for 1.61 million of the month’s 2.14 million vehicles sold. Tesla helped along with China’s May luxury sales number, selling 11,065 Model 3’s during the month compared to just the 3,635 vehicles it sold in April. However, that hasn’t stopped the company’s VP of Business Development in China, Robin Ren, from leaving the company, according to Bloomberg. The China Association of Automobile Manufacturers, or CAAM, had predicted an 11.7% jump for May, including commercial vehicle sales in its results. Predictions for June look ominous: the CPCA has said that June sales will decline in part because June 2019 was such a strong month for the industry.
China Urges Citizens to Shun Australia as Virus Dispute Simmers | Voice of America – – China is advising its citizens not to visit Australia, citing racial discrimination and violence against Asians, in what appears to be Beijing’s latest attempt to punish the country for advocating an investigation into the coronavirus pandemic. A notice issued by the Ministry of Culture and Tourism late Friday said there has “been an increase in words and deeds of racial discrimination and acts of violence against Chinese and Asians in Australia, due to the impact of COVID-19 pandemic.” “The ministry advises Chinese tourists to raise their safety awareness and avoid traveling to Australia,” the notice said. As part of its perceived retaliation, China has already effectively ended imports of Australian barley by putting tariffs of more than 80 percent on the crop, accusing Australia of breaching World Trade Organization rules by subsidizing barley production and selling the crop in China at below production costs. That came a week after China banned beef imports from Australia’s four largest abattoirs over labeling issues. Australian Trade Minister Simon Birmingham on Tuesday said the country did not want a trade war,but said China “has made errors of both fact and law” in applying WTO rules, adding that there was no evidence that Australia was engaged in dumping of products. Australian has been among countries pushing for an international investigation into the origins of the coronavirus pandemic and responses to it. Beijing has denied its measures against Australian beef and barley were related to those calls. The World Health Organization has bowed to calls from most of its member states to launch an independent probe into how it managed the international response to the virus, which was first found in China late last year. The evaluation would stop short of looking into contentious issues such as the origins of the virus. Chinese Ambassador Cheng Jingye’s has told Australian media that the country might face a Chinese boycott of its tourism and exports of wine, beef and other goods if the government pressed for a coronavirus inquiry. China is the No. 1 market for Australian beef, accounting for about 30 percent of exports. It’s also the biggest foreign buyer of Australian barley. Beijing has regularly used access to its huge market to punish governments from Norway to Canada in political disputes. Chinese officials routinely refuse to confirm a trade disruption is related to a political clash but make it clear Beijing wants concessions.
UN Warns of Impending Food Crisis – The United Nations issued a dire warning on Tuesday that the world stands on the brink of the worst foodcrisis in the last 50 years, according to The Guardian.The United Nations Secretary-General Antonio Guterres warned that the world is facing an “impending global food emergency” that could impact hundreds of millions of people as the coronavirus pandemic threatens already strained supply chains, according to Hong Kong-based Asia Times. He warned that the recessions that follow the pandemic will put basic nutrition out of reach for millions.”Our food systems are failing, and the Covid-19 pandemic is making things worse,” the UN chief said in astatement accompanying a report by the UN. “More than 820 million people are hungry. “Some 144 million children under the age of five are stunted – more than one in five children worldwide.”That’s particularly troubling as malnutrition has lifelong consequences. If the number of children who suffer from malnutrition grows, it is likely to cause increased stunting and provide a future strain on health care systems.Guterres warned that “this year, some 49 million extra people may fall into extreme poverty due to the Covid-19 crisis,” according to Asia Times.”Unless immediate action is taken, it is increasingly clear that there is an impending global food emergency that could have long-term impacts on hundreds of millions of children and adults,” as The Guardian reported. “We need to act now to avoid the worst impacts of our efforts to control the pandemic.” The UN Secretary-General provided a three-point plan for attacking the hunger crisis: focus aid on the worst-stricken areas to avoid immediate disaster, to improve social safety nets so children, pregnant women and breast-feeding mothers along with other at-risk group receive adequate nutrition, and to invest in healthy and sustainable food systems and supply chains for the future, according to Guterres’ statement. The latest data in the report, The Impact of COVID-19 on Food Security and Nutrition, found that the food security of 135 million people is at crisis level or worse. That number could nearly double before the end of the year due to the impacts of COVID-19. The report also expects harvests to slow down, since many seasonal laborers are unable to work or travel for work. Meanwhile, despite the impending crisis, food waste is surging as farmers are finding themselves in the unenviable position of dumping perishable food because of supply chain problems, as The Guardian reported.
Coronavirus Pandemic Fuels Mobile Money Transactions in Nigeria With Nigerian businesses struggling because of coronavirus lockdown measures, the use of mobile money and “no touch”, cashless transactions in business is growing rapidly. The use of mobile money grew by almost 15 percent in March, and experts say the practice is expected to become even more common as the pandemic continues. “Cashless Payments Only” is an inscription at the entrance of Washme laundry in Nigeria’s capital, Abuja. Laundry manager Paul Godiya says it’s a recent measure to limit physical contact with cash to prevent the spread of COVID-19. “There are different people that come here from different places and money is generally accepted which is coming from different people and is circulating from different angles. It may be that Mr. A has this disease or Mr. B has this disease. So, in the process of circulating it may get to me and affect me,” Godiya said. With more businesses like this Abuja laundry switching to payment technology to ensure health and safety during the coronavirus pandemic, the mobile money industry is experiencing significant growth. Analysis by the Nigeria Interbank Settlement Scheme (NIBSS) shows mobile money transactions went up by 14.5 percent between February and March – a period when the virus was first reported in Nigeria. Mobile money agents like Isaac Odah, whose business has been booming say the trend has continued to increase since the pandemic. “We are rendering essential services, so our services are not something you can do without because people transact, people pay for one or two things every day, and will need money to carry out such transactions. That’s why our services are booming during this pandemic,” Odah said.
The global economy faces the worst downturn in a century, a new report says. -The world economy is facing the most severe recession in a century and could experience a halting recovery with a potential second wave of the virus and as countries embrace protectionist policies, the Organization for Economic Cooperation and Development warned in a new report.A grim economic outlook released by the O.E.C.D. on Wednesday depicted a world economy that is walking on a “tightrope” as countries began to reopen after three months of lockdowns. Considerable uncertainty remains, however, as the prospects and timing of a vaccine remain unknown. Health experts fear that the spread of the virus could accelerate again later this year.“Extraordinary policies will be needed to walk the tightrope towards recovery,” said Laurence Boone, the O.E.C.D.’s chief economist. The O.E.C.D., which comprises 37 of the world’s leading economies, predicts that the global economy will contract by 6 percent this year if a second wave of the virus is avoided. If a second wave does occur, world economic output will fall 7.6 percent, before rebounding by 2.8 percent in 2021. The two scenarios are viewed as equally plausible. The report is slightly more ominous than other recent forecasts from the World Bank and the International Monetary Fund.
Global Economic Prospects -World Bank – COVID-19 has triggered the deepest global recession in decades. While the ultimate outcome is still uncertain, the pandemic will result in contractions across the vast majority of emerging market and developing economies. It will also do lasting damage to labor productivity and potential output. The immediate policy priorities are to alleviate the human costs and atenuate the near-term economic losses. Once the crisis abates, it will be necessary to reaffirm credible commitment to sustainable policies and undertake the necessary reforms to buttress long-term prospects. Global coordination and cooperation will be critical. COVID-19 has delivered an enormous global shock, leading to steep recessions in many countries. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020 – the deepest global recession in decades. Per capita incomes in most emerging and developing economies will shrink this year. The pandemic highlights the urgent need for policy action to cushion its consequences, protect vulnerable populations, and improve countries’ capacity to cope with similar future events. It is also critical to address the challenges posed by informality and limited safety nets and undertake reforms that enable strong and sustainable growth.The rapid rise of COVID-19 cases, together with the wide range of measures to slow the spread of the virus, has slowed economic activity precipitously in many EMDEs. Growth forecasts for all regions have been severely downgraded. Many countries have avoided more adverse outcomes through sizable fiscal and monetary policy support. Despite these measures, per capita incomes in all EMDE regions are expected to contract in 2020, likely causing many millions to fall back into poverty. COVID-19 is expected to lead to the deepest global recession in decades, with baseline forecasts envisioning a 5.2 percent contraction in global growth this year. Click on the button to download data into Excel.
April’s Historic Economic Plunge Points to Steep Climb for the World Economy – WSJ – Economic numbers coming in from around the globe are laying bare a stark truth: April was the cruelest month. Coronavirus-driven lockdowns implemented in countries world-wide were at their strictest then, and drove a global contraction that has little parallel in history. The depth of the decline will make the climb back more challenging, and it means that even a sharp initial rebound could leave the global economy smaller than it was before the pandemic. The U.K. was the first large economy tomeasure the output lost to April lockdowns,but others are likely to suffer similar fates. Cumulative change since December 2015 inU.K. GDP, measured monthly Source: Office for National Statistics On Friday, Britain – the world’s sixth-largest economy and one of the few that reports monthly gross domestic product – said output in April was down 20% from March and 25% from a year earlier. Scaled globally, that would be equivalent to a $1.15 trillion loss in output during those 30 days, or roughly the annual output of Indonesia, a country of 270 million people. That underscores how steep the climb ahead is to return to pre-pandemic levels of activity, given that the damage to business and household incomes is likely to delay a complete recovery. Officials at the U.S. Federal Reserve expect the national economy to shrink between 4% and 10% this year. Next year, the economy could see anything from 7% growth to a further contraction of around 1%. A Fed report released Friday said that if virus-related disruptions, such as weak consumer confidence, continued to weigh on economic activity even after lockdowns end, more businesses could fail or scale back their activities. That could lead more temporary layoffs to become permanent. The evidence of the depth of economic pain in April is stark. India recorded no new auto sales in April, according to the Federation of Automobile Dealers Associations. In the U.K., only 197 autos were made, compared with about 70,000 in April 2019. Exports from Germany, one of the world’s manufacturing powerhouses, fell by a third. In Bosnia and Croatia, no steel was produced. Clothing sales in France, the home of fashion, were down 67.4%. “The shock was huge,” said Helene Baudchon, an economist at BNP Paribas in Paris. “Even this word is not enough to qualify the scale. We are back to the 1980s in terms of household consumption of goods.”
Exclusive: ECB prepares ‘bad bank’ plan for wave of coronavirus toxic debt – (Reuters) – European Central Bank officials are drawing up a scheme to cope with potentially hundreds of billions of euros of unpaid loans in the wake of the coronavirus outbreak, two people familiar with the matter told Reuters. The project, which comes as Europe mobilises trillions of euros to bolster the region’s economy, is aimed at shielding commercial banks from any second fallout from the crisis, if rising unemployment chokes off the income needed to repay loans. One of the people familiar with the plan said the ECB had set up a task force to look at the idea of a “bad bank” to warehouse unpaid euro debt and that work on the scheme had accelerated in recent weeks. The ECB declined to comment on whether it was working on a bad bank scheme. The amount of debt in the euro zone that is considered unlikely to ever be fully repaid already stands at more than half a trillion euros, including credit cards, car loans and mortgages, according to official statistics. That is set to rise as the COVID-19 outbreak squeezes borrowers and could even double to one trillion euros, weighing on already fragile banks and hindering new lending, the people familiar with the ECB plans said. While the idea for a euro zone bad bank was discussed and shelved over two years ago, the ECB, under its new President Christine Lagarde, has consulted banks and EU officials about a scheme in recent weeks, one of the people said.
The European Union Still Hasn’t Considered an Economic Proposal That Can Save It – Marshall Auerback – On May 5, Germany’s constitutional court ruled that parts of the European Central Bank’s bond buying operations to avert a mounting economic depression were illegal. In the wake of that decision, many new proposals have surfaced. First, the European Central Bank (ECB) added a further €600 billion to its earlier announced pandemic emergency purchase program (PEPP) to support Europe’s rapidly faltering economy. This brings the total bond buying up to €1.35 trillion. Additionally, a €500 billion “Next Generation” recovery fundwas introduced by the governments of France and Germany, a figure that was later increased to €750 billion by European Commission (EC) President Ursula von der Leyen. The numbers behind these programs sound impressive, but taken in aggregate, the proposals simply tweak the legal and fiscal status quo. The ECB proposals blithely ignore the problematic legal issues raised by the May 5 German constitutional court decision. And the Next Generation fund, although on the surface not suffering the same legal deficiencies as the ECB’s actions, is insufficiently large to yank the EU out of its COVID-19 depression, which will require trillions of euros to compensate for the lost economic output, not billions. Almost daily, the continent is experiencing record collapses in economic output – even powerhouses like Germany, as well as the periphery nations of the south. The problem is that at this stage, the EU can ill afford any more baby steps if it wants the European Union to survive as a workable political construct, or the euro to survive as a viable currency. Unlike the latest ECB announcement, the Next Generation proposal at least has the virtue of being structured with a view toward avoiding potential future legal challenges, precisely because it does not mutualize existing national debts. And the fact that it has Germany’s backing is not insignificant. Jörg Kukies, Germany’s deputy finance minister (and one of the architects of the initiative), explicitly acknowledged that true European sovereignty could not evolve “as long as fiscal union remains incomplete.” But the fact remains that this particular structure does not really advance that cause (even Kukies himself acknowledges that the Next Generation fund does not mutualize national debts). The new initiative likely passes legal muster but at a cost of failed economic effectiveness.
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