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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The Fed Has Monetized All Treasury Issuance In 2020 – There is no more subversive entity in the US, more destructive, more inflammatory yet out of the spotlight of public outrage, than the Federal Reserve: it is the Fed’s actions over the past 108 years – and especially over the past decade – that have spawned much of the anger, resentment and hatred that has permeated US society to its very core as a result of the Fed’s monetary policies. Yet because much of the public fails to grasp the insidious implications of endless money-printing which makes owners of assets exorbitantly rich at the expense of regular workers, popular anger at the Fed remains virtually non-existent, despite clear warnings from Thomas Jefferson, and countless others over the decades, about the dangers posed by central banking. And so, taking advantage of the general public’s general gullibility, the Fed continues to lie and dissemble at every opportunity, of which the most recent example was last week when Powell said that “inequality has been with us for increasingly for four decades” and arguing that monetary policy is not a cause for that. What he forgot to mention is that four decades ago is when the Nixon closed the gold window…. … severing the last link of the US dollar to tangible value, and allowing the Fed to print with impunity, creating the current wealth divide which has now spilled over into the streets of America. One other thing the Fed has been consistently lying about is that it does not monetize the debt. The chart below is evidence that this, too, is a lie, with US Treasury debt increasing by $2.86 trillion in 2020 (most of it in the past three months) which is less than the $3.0 trillion increase in the Fed’s balance sheet over the same period. In other words, the Fed has monetized 105% of all Treasury issuance this year. So although Powell may never admit it, Helicopter Money, also known as “MMT”, is now here, and will never go away as Deutsche Bank hinted earlier.
The Fed says it is going to start buying individual corporate bonds – The Federal Reserve is expanding its foray into corporate credit to now buy individual corporate bonds, on top of the exchange-traded funds it already is purchasing, the central bank announced Monday. As part of a continuing effort to support market functioning and ease credit conditions, the Fed added functions to its Secondary Market Corporate Credit Facility. The program has the ability to buy up to $750 billion worth of corporate credit. Its March 23 initial announcement is largely considered a watershed moment for the financial markets, reeling from the coronavirus threat spread. “The decision to buy a broad portfolio of corporate bonds represents a shift to a more active strategy for the secondary market corporate credit facility, rather than the passive approach originally envisioned,” said Steven Friedman, senior macroeconomist at MacKay Shields. The move comes less than a week after a downbeat Federal Open Market Committee view of the U.S. economy in the wake of the coronavirus pandemic. Moving to a more aggressive bond-buying strategy “may also reflect the Committee’s view that the economic recovery from the ongoing COVID-19 crisis will be an extended and challenging one, with credit markets requiring extensive support,” Friedman added. Under the latest guidelines, the Fed said it will buy, on the secondary market, individual bonds that have remaining maturities of five years or less. Those purchases will go along with the ETFs the Fed already has been buying, which are balanced toward investment-grade indexes but also include some junk bond funds that track debt which had been investment grade before the crisis but had been downgraded after. The intent of the individual debt purchases will be “to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds,” the Fed said in a news release. “This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity, and other criteria. This indexing approach will complement the facility’s current purchases of exchange-traded funds,” the statement said.
Recession Measures and NBER — Calling the beginning or end of a recession usually takes time. However, the economic decline in March was so severe that the National Bureau of Economic Research (NBER) has already called the end of the expansion 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. 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 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.The NBER will probably wait some time before calling the end of the recession, this process can take from 18 months to two years or longer.In the mean time, if the economy slides into recession again, the committee will only consider it a new recession if most major indicators were close to or above their previous highs. Otherwise it will just be considered a continuation of the previous recession. It will take some time for most major indicators to be above their previous high after the current recession because of the severe contraction as the graphs below show. GDP is the key measure, as the NBER committee notes in their business cycle dating procedure: The committee views real GDP as the single best measure of aggregate economic activity. This graph is for real GDP through Q1 2020.This is the key measure, and the NBER will probably use GDP and GDI to determine the trough of the recession.Real GDP is only 1.2% below the pre-recession peak – however real GDP is expected to decline another 7% to 8% in Q2 (A much larger decline than the Great Recession). Most forecasters expect GDP to be positive in Q3, but will remain below the pre-recession peak until sometime in 2021.
The Coronavirus Recession may already (technically) have ended: sales and production both increased in May –Sales and production are two of the four things that economists look for in gauging whether the economy is in expansion or recession, and this morning both of them – retail sales and industrial production – were released for May. So it’s true: as defined by the NBER, the Coronavirus Recession may have only lasted two months, from February through April. That’s because, just as February was the peak of economic activity before the coronavirus hit, April may well have been the trough. And recessions technically end, not when the economy becomes objectively “good” or “fair,” but simply when the trajectory is less awful than before. If the trajectory is positive, from really awful, to slightly less really awful, the recession has ended, even if the economy is still, well, awful.To the graphs! First, here are retail sales, both nominally and as adjusted for inflation: Both increased 17.7% in May, after declining over 14% in April. Both are also slightly higher than their levels in March. Clearly the “reopening” of the economy in large portions of the country led to a splurge in spending. Next, here is total industrial production (blue) along with manufacturing production (red): Both increased slightly. Since employment also increased in May, that makes three of four sectors included in recession measurements that – as of now – are off their lows, as shown in the graph below: Personal income less transfer receipts for May won’t be reported for another couple of weeks, but even if it is lower, the NBER may still decide that the recession has ended. That’s because industrial productions is the King of Coincident Indicators, and carries more weight than the others in recession calls. For example, here is the period of time including the Great Recession: The NBER determined that the recession ended in June 2009. That’s when industrial production bottomed. Real retail sales had already bottomed several months before. Both employment and real income were close to but had not yet reached their bottoms. So, even though the economy as measured by all four sectors is still awful, it was a little less awful in May than it was in April, and that may be enough for the NBER. Two important caveats:
- (1) I don’t expect the NBER to be so quick with this call as they were with their recession onset call, because they will want to be sure that this is not a false start; which leads even more importantly to
- (2) the virus is still in control. Those States which have recklessly opened without waiting for infections to abate, and without effective testing, tracing, and quarantining protocols – which is almost all of them, particularly in the South, High Plains, and Mountain West – are seeing new infections start to rise again, and in some cases – Arizona, Alabama, Arkansas, Texas, and South Carolina for example – the graphs are beginning to look exponential again. It would not be surprising at all if renewed panic were to set in, with new lockdowns put in place, or at very least consumers pulling back from face-to-face activity. In other words, the increases in industrial production, employment, and sales may well prove temporary.
Might There Be A V-Shaped Economic Recovery After All? – I have made a lot of forecasts that the time path of GDP is likely to look like a “lazy J” or “whoosh,” a pattern of slow recovery after the very rapid decline, with a possible W if a second wave of the pandemic hits hard. What I often dismissed, sometimes rather pompously to people who seemed to push it for blind political or ideological reasons was that there might be a rapid bounceback, a V-shaped recovery. Now that it looks like it might happen, or at least a modest version of it, so I may be wrong on my past forecasts. Curiously, as noted in a fairly recent post, I was one who was not surprised by the net increase in employment in May, given the evidence noted in still earlier posts of a likely turnaround in GDP that probably dates back even into late April and probably not later than early May, looking at figures on gasoline demand and carbon emissions. It seemed not surprising that this turnaround would lead to some new hiring, even as further layoffs were clearly happening. But most of this data seemed consistent with the Whoosh scenario, with these renewed increases occurring at rates much lower than the rates of preceding decline. So the net increase in hiring in May was only 2.5%, large for normal time, but only beginning to offset the double-digit plunge that had happened before it. But now we have the report that looks pretty accurate that retail sales rose 17.7% from April to May, not sure of the precise cutoffs for this. I made no specific forecast for that, but given the labor hiring numbers, I would figure that probably retail sales rose more than hiring. But there is no way I would have forecast a double-digit increase, and might not even have predicted more than a 5% increase if I had done so. Thus, needless to say, I am quite surprised by this figure. Indeed, for retail sales this more than a V-shaped recovery. The rate of decline for March to April was -14.4%. Apparently, retail sales are now only 8% below their peak in February. So the rate of growth of retail sales could slow to half the April to May rate and end up higher than the February level. I find this hard to believe, but I also have no good grounds for questioning this data. Advocates of a V-shaped recovery, whether Trump and his immediate advisers, or other economists, mostly a minority, argued that an outburst of “pent-up demand” would lead to this, and it would seem that has happened, with probably some non-trivial assistance from stimulus checks and generous unemployment benefits, along with some other elements of fiscal stimulus, some of which have already stopped or are scheduled to do so in coming months. I had dismissed such a strong surge of purchasing based on people being afraid and cautious, as well as many sectors still held down specifically due to pandemic restrictions, at least through much of May.
Q2 GDP Forecasts: Probably Around 33% Annual Rate Decline – Important: GDP is reported at a seasonally adjusted annual rate (SAAR). So a 33% Q2 decline is around 8% decline from Q1 (SA). From Merrill Lynch: We revise up 2Q GDP to -35% qoq saar from -40% and 3Q to 20% from 7%, given the faster and more successful reopening. [June 18 estimate] From Goldman Sachs: We have adjusted our real GDP growth forecasts and now expect -33% in Q2, +33% in Q3, and +8% in Q4 (vs. -36%, +29%, and +11% previously) in qoq annualized terms. [June 18 estimate] From the NY Fed Nowcasting Report : The New York Fed Staff Nowcast stands at -19.0% for 2020:Q2 and -1.9% for 2020:Q3. [June 19 estimate] And from the Altanta Fed: GDPNow:The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2020 is -45.5 percent on June 17, down from -45.4 percent on June 16. [June 17 estimate]
Governments May Revisit Postwar Playbook as They Tackle Huge Debts – WSJ -Leaders around the world have compared their efforts to bring the novel coronavirus under control to fighting a war. The similarities may not end when the battle to tame the virus has been won, and the debts accumulated by governments have to be repaid.In the U.S. and elsewhere, government debt is set to soar this year, reflecting lower tax revenue and the cost of financial aid to businesses and households during lockdowns. The International Monetary Fund forecasts that U.S. government debt will reach 131% of annual economic output this year, up from 109% in 2019.That is a higher debt burden than after World War II. Other countries are facing similarly high debt levels, including the U.K., France, Italy and Spain. Some people thinking about how to pay down the debt are looking at an approach used after World War II: financial repression, or policies that ensure that interest rates remain low. They include central-bank purchases of government bonds and regulations prodding investors to hold such securities, said Keith Wade, chief economist at Schroders. Such measures would help hold down bond yields, lowering interest costs over time. “It is increasingly likely that governments will rely on financial repression to erode their debt-to-income ratios,” he said. In the years after World War II, the U.S. Federal Reserve and Treasury Department ran a joint operation to support prices of government bonds – which kept interest rates down – while other measures in the U.S. and elsewhere placed limits on interest rates paid by banks, making alternatives to government bonds less attractive to investors. Another approach would be to encourage higher inflation, which allows the nominal debts incurred today to be paid down with cheaper money in the future. But developed-economy central banks have tried and failed for most of the past decade to lift inflation to their targets around 2% for a variety of reasons unlikely to go away, such as aging populations, slow economic growth, globalization, advancing technology and low interest rates.
Lawmakers to Press Powell on Additional Relief Measures – WSJ – Federal Reserve Chairman Jerome Powell is likely to face more lawmakers’ questions Wednesday about how Congress should design any future economic relief measures amid the coronavirus pandemic. Mr. Powell will testify for a second day on Capitol Hill, this time before the House Financial Services Committee starting at noon Eastern time on Wednesday before answering questions from the panel members. Congress faces deadlines this summer over how to address expiring provisions of relief measures for businesses and unemployed workers, following nearly $3 trillion in emergency spending earlier this year.Elected officials in both parties have long used the Fed chairman to serve as an expert witness on economic subjects that the central bank has little authority over.During his testimony in front of the Senate Banking Committee on Tuesday, Mr. Powell tried to avoid appearing too involved in partisan spending discussions while signaling support for more funding in at least three broad areas:
- Aid for unemployed workers: Mr. Powell said even if the economy avoids a big spike in infection rates, many employees in industries such as hospitality, entertainment and travel could be out of work for a long time if spending habits change because consumers avoid crowds or other activities that require people to be in close quarters.
- Funding for cities and states: Mr. Powell said state and local government job losses after the 2007-09 recession had been a “well documented” drag on the recovery and he warned that revenue declines from the pandemic could force layoffs as states look to balance budgets. Economists at Goldman Sachs estimate state and local governments face cumulative revenue shortfalls of $450 billion through mid-2022. Congress has provided $275 billion in aid to cities and states this year, but more than half of that can’t be used to plug revenue holes.
- Virus suppression: Mr. Powell said spending measures to boost confidence among the public that “it’s safe to go out and take part in the economy will have very high returns for the economy.” Those steps could include more widespread virus testing, contact tracing, and other confidence-inducing health measures.Democrats have supported a more aggressive round of spending, with the House of Representatives last month approving another $3 trillion relief package. Some Republicans have said they are worried about the long-term impact on deficits with additional spending, and many have said they want more time to see which parts of the economy will need support the most.Mr. Powell framed the discussion Tuesday around additional spending by offering a relatively sober assessment of the economic outlook. If the virus remains “reasonably well under control,” Mr. Powell told lawmakers he expected the economy could already be moving from a sharp contraction toward a bounce back marked by large increases in re-employment.
Fed’s Powell beats drum for more government aid to bolster economy – (Reuters) – The U.S. economy is beginning to recover from the worst of the coronavirus crisis, but with some 25 million Americans displaced from work and the pandemic ongoing, it will need more help, Federal Reserve Chair Jerome Powell told lawmakers on Wednesday. “We at the Fed need to keep our foot on the gas until we are really sure we are through this, and that’s our intention, and I think you may find that there’s more for you to do as well,” Powell said in testimony via a video link to the U.S. House of Representatives Financial Services Committee. “It would be a concern if Congress were to pull back on the support that it’s providing, too quickly,” he said. With the road back from recession likely to take some time, Powell said interest rates will likely need to stay near zero for “an extended period” and the U.S. central bank will continue to buy bonds to push down on longer-term borrowing costs. But the Fed chief, who also testified before the Senate Banking Committee on Tuesday, noted that Congress must also do its part. Referring to people whose jobs will be slow to return, such as those employed in the travel and restaurant sectors, Powell said it was “better to keep them in their apartment, better to keep them paying their bills.””We should find ways as a country to support those people and help them through this difficult part of their lives,” he said.It will be particularly important, Powell said, for Congress to extend in some form the extra $600 weekly payments to the unemployed that were part of a relief package passed in March and that will expire in July. “You would not want to go all the way to zero on that,” he said. State and local governments, as well as small businesses, also will need some aid, he said.His message was echoed later on Wednesday by Cleveland Fed President Loretta Mester, who said that while federal government support had been sizeable, so was the depth of the economic downturn.”Further direct fiscal support will be needed for states and municipal governments and for households most affected by the pandemic,” Mester told the Council for Economic Education via video link. She also said there should be increased investment on testing, contact tracing and treatments to control the spread of the novel coronavirus.
Trillions In Stimulus Cash Has Been Distributed With “Barely Functional” Oversight – Today in “the government is an awful capital allocator” news, trillions of dollars in stimulus money has apparently been doled out with little to no oversight. At the same time, politicians on both sides of the aisle are scrambling to establish order in the form of various oversight panels and inspectors general, according to Bloomberg.In fact, it was found that some of the oversight bodies responsible for tracking the money are “barely functional”. This comes after $2 trillion in stimulus cash has been doled out. Many, including Peter Schiff, predicted months ago that printing and distributing such a vast amount of money would inevitably lead to fraud and misuse due to the government’s inability to track the money.Now that’s exactly what’s taking place. Meanwhile, a special inspector general, Brian Miller, has only been sworn in recently and is already facing questions from Democrats about his ability to be independent. Senator Elizabeth Warren noted that funds are already going to the wrong place: “We’ve seen giant public companies scoop up relief meant for small businesses, an inspector general fired, promises made to muzzle independent oversight.” Sherrod Brown of Ohio called Miller “evasive” and “unwilling to condemn” Trump for removing other agency inspectors general ahead of the stimulus being sent out. Miller is tasked with trying to prove to both sides of the aisle that he can be independent, fair and a person of consequence when he releases his first report, which is due in August. Neil Barofsky, the first special inspector general who oversaw TARP, said: “Your first report is to amplify what you’ve found. That really defined what we would be. There is always going to be tension between a good IG and the agency.”
PPP Small-Business Loans Left Behind Many of America’s Neediest Firms – WSJ – Congress and the Trump administration, in their bid to funnel more than $650 billion in forgivable loans to small businesses struggling through the pandemic, delivered a program that didn’t work for many that needed it.The Paycheck Protection Program, which sped through Congress, was a rare instance of bipartisan cooperation between lawmakers and the administration, and opened for business on April 3, just two weeks after it was drafted. The program, known as the PPP, kept millions of workers off unemployment rolls by providing temporary support for businesses facing pandemic lockdowns and disappearing demand.Yet the PPP left many of the hardest-hit empty-handed. Looking back, the program failed to take into account the near-countless varieties of small business, which employ nearly half of U.S. private-sector workers, and how best to help them, according to economists, business owners and bankers.The PPP was most helpful to enterprises able to continue operations or quickly reopen. It largely failed those that either closed during prolonged lockdowns, drew too few customers to afford more than a skeleton staff, or were overwhelmed by high overhead costs, such as rent.Some businesses were too small to have relationships with banks, which processed the loans, leaving small entrepreneurs – sole proprietors, mom-and-pop operations and the like – at the tail end of weekslong lines. Some had poor records or little, if any, payroll. The government has approved 4.6 million loans worth more than $513 billion as of Tuesday. Those have reached a fraction of the 31.7 million small businesses in the U.S., a figure that includes 25.7 million firms without employees, according to the Small Business Administration.
Pressure Builds on Trump Administration to Name PPP Borrowers – WSJ – Pressure is building on the Trump administration to disclose the names of borrowers that received loans through the Paycheck Protection Program, and a key senator signaled that the names of larger loan recipients could be released. The Small Business Administration has so far not made public the list of roughly 4.6 million businesses that have received more than $512 billion from the pandemic emergency lending program since early April. The agency is holding out despite growing demands for the data from government auditors, media companies, public interest groups and Republicans and Democrats in Congress. All contend disclosure is essential to determine whether the huge program is working as intended. “We will have PPP loan disclosure,” Sen. Marco Rubio (R., Fla.), chairman of the Senate Small Business Committee, wrote Tuesday on Twitter. Mr. Rubio, who has worked closely with the Trump administration on the PPP, said that there is “no dispute over larger loan recipients being disclosed” but that discussions were still under way on “how to treat smaller loans to mostly micro-business, sole proprietors & independent contractors.” Mr. Rubio’s expectation of disclosure contrasted with comments last week by Treasury Secretary Steven Mnuchin, who said during a hearing before Mr. Rubio’s committee that the administration isn’t publicly disclosing the identities of PPP loan recipients. “We absolutely need transparency,” said Mr. Mnuchin, who has played a central role in setting the policies for the SBA program. “As it relates to the names and amounts of specific PPP loans, we believe that that is proprietary information and in many cases, for sole proprietors and small businesses, is confidential information.” The loan amounts are calculated based on monthly payroll.
“Money They’re Desperate For”: Many Gig Workers Still Can’t Get Their Unemployment Benefits -It has now been several months since the federal government has implemented monetary stimulus to try and alleviate the financial effect of the coronavirus pandemic and the ensuring economic shut down.Back in the beginning of May – nearly 6 weeks ago – we highlighted how many gig workers were still waiting for their first round of unemployment benefits. Today, past the mid-point of June, many of those workers are still waiting, according to CBS Chicago.And we wonder what is helping fuel the riots in the streets over the last few weeks…The money appears to be on hold due to audits, according to gig workers that spoke to CBS. Meanwhile, the same workers say that it is “money they’re desperate for”. One worker, Bill Mylan, says the government has had his information “for months” but he still hasn’t received benefits. “We’ve missed out on two to three good months of making money already,” he said. He has had no income since March, which is when he first applied for unemployment. He eventually reapplied through the state’s Pandemic Unemployment Assistance portal, because he’s considered a gig worker. That portal only just opened last month. “I’ve been doing little odd jobs for my landlord just to get by; make ends meet. It says on my claim it’s a benefit payment control issue,” he said. When he called to ask about it, he got a recorded message simply saying “We are closed due to unforeseen circumstances.”When he reached someone at the Illinois Department of Employment Security, they told him the holdup was due to an audit. “I don’t understand why now, the last step, is all of a sudden to do an audit when we’ve been in the system,” he said.
Kudlow calls $600 unemployment checks a ‘disincentive,’ expects them to stop in July – Larry Kudlow, director of the National Economic Council, said Sunday that the $600 checks being sent to Americans on unemployment as part of coronavirus relief efforts are expected to end in July and called them a “disincentive” for people to get back to work. “The $600 plus-up that’s above the state unemployment benefits they will continue to receive is in effect a disincentive. I mean, we’re paying people not to work. It’s better than their salaries would get,” Kudlow said on CNN’s “State of the Union.” “That might have worked for the first of couple months. It will end in late July,” he added. Kudlow suggested the additional checks are no longer needed as businesses reopen and unemployment rates fall. He said the Trump administration is looking at other incentives, including smaller checks that “still provide some kind of business for returning to work.” “I think we are on our way. We are reopening, businesses are coming back and therefore jobs are coming back,” Kudlow added. “We don’t want to interfere with that process.”CNN’s Jake Tapper pressed Kudlow on his description of the checks as a disincentive, adding that many Americans want to get back to work but a lot of jobs are not coming back. “I think that’s a fair point. I personally agree with you. I think people want to go back to work. I think they welcome the reopening of the economy. I think they’re anxious to get out and about,” Kudlow said. He added that he has “heard from business after business” that there is “evidence this effect is taking place.”
Kudlow Urges Replacing Unemployment-Benefit Boost With Return-to-Work ‘Bonus’ – WSJ – A senior economic adviser to President Trump said Sunday the U.S. needs to stop providing a $600-a-week boost in unemployment benefits instituted in response to the coronavirus pandemic and replace it with a smaller bonus for workers who return to their jobs. Larry Kudlow, director of the White House National Economic Council, said the additional benefits might be dissuading some Americans from going back to work as businesses reopen across the country. “We’re paying people not to work. It’s better than their salaries would get,” Mr. Kudlow said on CNN Sunday. “The jobs are coming back and we don’t want to interfere with that process.” The boost to unemployment benefits, which started flowing to unemployed workers in April, expires at the end of July. Lawmakers are expected to debate another round of legislation responding to the economic fallout from the pandemic in the coming weeks. Democrats want to extend funding for the enhanced unemployment payments. Other administration officials have previously signaled concerns similar to Mr. Kudlow’s about continuing the current policy, as have Republicans in Congress, which would have to pass a law to extend the program beyond its July 31 expiration date. “We are not going to remove unemployment benefits. That will still continue,” Mr. Kudlow said. Unemployment benefits are administered and paid out by states, but the federal government is funding the $600 benefit boost as part of emergency legislation adopted to respond to the coronavirus.
Has leadership vacuum hamstrung CARES Act watchdog? – A congressional watchdog panel is hitting a roadblock in its oversight of the federal government’s economic recovery programs, as House and Senate leaders have yet to agree on a person to chair the commission mandated by the Coronavirus Aid, Relief, and Economic Security Act almost three months after it became law. Although the Congressional Oversight Commission has issued two reports, including one released Thursday about the recipients of government aid, sources close to the panel say a lack of agreement by Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Mitch McConnell, R-Ky., on who will run the watchdog is slowing down its work. The lack of a leader has prevented the commission from hiring dedicated staff. One source close to the commission said the inability to hire staff has become a “significant” obstacle, noting that a similar watchdog overseeing the Troubled Asset Relief Program in 2008 needed its own staff to probe the bailout. “We are doing our best without staff, but the 2008 [Congressional Oversight Panel] had more than 40 staff by comparison, so it’s a serious problem,” the source said. As of now, Sen. Pat Toomey, R-Pa., and Reps. French Hill, R-Ark., Donna Shalala, D-Fla., and Bharat Ramamurti, a former adviser to Sen. Elizabeth Warren, D-Mass., have been appointed to serve on the commission.Bloomberg NewsThe Congressional Oversight Commission was established to oversee the implementation of Title IV of the CARES Act, which includes the Federal Reserve’s emergency lending facilities and Treasury Department loans to sectors hit hard by the pandemic. Another source close to the commission said that the lack of a chair has “complicated our process.” Neil Barofsky, a partner at Jenner & Block who served separately as the special inspector general for the Troubled Asset Relief Program in 2008, said that the Congressional Oversight Commission “can’t really do its job at all without a chair.” “To conduct hearings, to get staff, to do all those things, you need to have a chair,” Barofsky said. “So essentially one of the cornerstone pieces of oversight for the CARES Act … is empty, unconstructed. It’s really remarkable in a lot of ways.” Barofsky added that the chair of the commission is also needed to set the direction and tone of oversight for Title IV.
Federal Tax Receipts Show A Record Plunge In May, Raising More Doubts About Employment Data Accuracy — The Monthly Treasury Statement for May showed federal withheld income tax receipts falling a record 33% from the comparable period one year ago. The decline in May tax receipts exceeds the 30% decline in April. Monthly tax (gross) receipts have been reported since 1973 and April and May declines are the largest on record. Federal withheld tax receipts are directly related to workers paychecks. The scale of the decline in tax receipts is nearly three times the decline in reported household and payroll employment. The unprecedented gap raises questions about the accuracy of the April and May employment reports. Federal withheld (gross) income tax receipts are highly correlated with employment levels and wage growth since taxes are withheld from workers paychecks. Monthly receipts can be noisy, often influenced by the number of workdays. Nonetheless, back-to-back monthly declines are rare and have only occurred during periods of exceptionally large declines in employment or when there have been legislative changes that lower peoples’ withheld tax payments. There are no legislative changes that would result in dramatically lower withheld gross federal income tax receipts. So the logical conclusion is that the sharp drop in withheld income tax receipts is directly related to a plunge in wage and salary income. Without question, the tax data raises doubts over the scale of reported job loss as well as industries that experienced the largest declines. Tax receipts are off over 30%, while employment levels are off roughly 13%. How can tax receipts fall three times more than employment? As puzzling as that appears to be what is equally puzzling is that the vast majority of job loss was concentrated in lower-wage industries, such as leisure and hospitality and retail trade. If job loss was concentrated in low wage industries one would not expect tax receipts to fall three times as fast as overall employment.The tax data for April and May offers strong evidence that the employment data is inaccurate.
How America’s Covid-19 Rescues Look Set to Increase Inequality — Yves Smith – The notion that the US approach to handling the Depression-level shock of Covid-19, to shovel cash at the rich and give only short-term, modest help to those at the bottom of the food chain, is hardly news. Nevertheless, a new, detailed, non-paywalled Financial Times story, Why the US pandemic response risks widening the economic divide, does a fine job of laying out how the major gimmies worked and how large their impact is likely to be. This one-stop shopping is important, if nausea-inducing, reading. But this piece nevertheless seems oddly incapable of drawing conclusions, or more accurately, conclusions commensurate with its data. The authors are concerned about the prospect of even more inequality, but see the impact as low growth. They underplay the fact that the lack of shared sacrifice, and worse, the rich all too clearly getting richer, is a prescription for social upheaval, particularly if unemployment stays very high.The chart title below is similarly in denial that more concentration of wealth at the top is a feature not a bug, and the corollary is a lack of wealth not just for those at the bottom but the entire bottom half:In a system where most people must sell one’s labor as a condition of survival, it behooves the people in charge to provide enough adequately paid work. The importance of that duty seems lost on American elites. Worse, the Trump version is that if people get hungry enough, they’ll have to work. But the officialdom seems not to have sorted out that the “work” available might wind up being the gang member sort.In keeping, the worst outcome the article envisages is a repeat of the post 2008 “slower recovery, especially in wages, and … .a new wave of economic populism.” Can’t they see that differences in degree can and will produce differences in kind?The big facts: so far, the US has had $3 trillion of stimulus, enough to juice Wall Street and keep most top managers and executives working at home. The middle and lower class have gotten only short-term relief which is set to expire soon. Record high stock prices and the big bounce in retail sales means stingy Republicans don’t want to give the lower orders more dough (not that the Democrats have been paragons of virtue). The top 25 percent of income earners are responsible for more than half of the nation’s drastic plunge in consumer spending since the start of the pandemic, according to a new study from Opportunity Insights, a Harvard-based research group.Big spenders cut back most when it came to high-touch goods and services with a bigger risk for catching COVID-19, such as restaurants, hotels and transportation, the researchers found. That had a big trickle-down effect on the businesses and workers that rely on their money.Small merchants in the most affluent zip codes lost more than 70 percent of their revenue when the virus struck, while those in the poorest areas lost just 30 percent, the study says. The layoffs that accompanied those losses followed a similar pattern – over 70 percent of low-wage workers at small businesses in rich areas lost their jobs within two weeks of the start of the crisis, compared with less than 30 percent in the lowest-rent ZIP codes.
Expanded Tax Break for Charitable Gifts Gains Support in Congress – WSJ – A bipartisan effort to expand tax breaks for charitable donations is gaining momentum in Congress, as nonprofit groups struggle during the pandemic. Senators, including James Lankford (R., Okla.) and Jeanne Shaheen (D., N.H.), want to let taxpayers deduct charitable donations, even if they don’t itemize their deductions. Their plan would greatly increase a small tax break created in March that allowed such extra charitable deductions. Their plan would limit that to one-third of the standard deduction. In 2020, that is $4,133 for individuals and $8,267 for married couples. The senators, backed by organizations with national clout such as Habitat for Humanity International and the YMCA, are offering their idea as a way to help nonprofits and their middle-class donors. They are pitching it for the next economic-relief legislation, set for Senate consideration next month. “Their services are most in need right now, as the challenges from the pandemic and the economic fallout are so great,” Ms. Shaheen said in an interview. “How can we help them in ways that are going to make a difference?” Charities are struggling during the pandemic after fundraising events were canceled and the stock market gyrated. Habitat laid off 10% of its staff and cut executive pay. Some religious congregations report donation declines of more than 30% and have lost income from renting space for events, according to the Union of Orthodox Jewish Congregations of America.
Federal Judge Orders Trump Admin to Give Native Americans Their Withheld Stimulus Money -Frustrated and disgusted that it has taken so long for the Department of the Treasury to distribute Federal stimulus funds to Native American tribes, a federal judge ordered Secretary Steve Mnuchin to distribute the money immediately, according to HuffPost.The judge said that the Native Americans should have received their portion of the CARES Act months ago when other Americans received theirs.The decision from U.S. District Judge Amit Mehta was particularly critical of Mnuchin’s decision to hold back $679 million in funding set aside for tribes while waiting on a decision in another case that will determine whether tribal businesses are eligible for the funding, as The Hill reported. “Continued delay in the face of an exceptional public health crisis is no longer acceptable,” said Mehta, who gave Mnuchin until Wednesday to disburse the funds, as HuffPost reported.”The Secretary has now taken more than twice as much time as Congress directed to distribute all CARES Act funds,” Mehta wrote, referring to the $2.2 trillion March legislation that earmarked $8 billion for tribal governments, according to The Hill. “The 80 days they have waited, when Congress intended receipt of emergency funds in less than half that time, is long enough.”The money is desperately needed, as the Navajo Nation saw the largest spike in COVID-19 cases per capita in the nation and access to clean water and reliable healthcare remain limited for many tribes. As a result of the delayed payments, the Navajo Nation has not been able to develop adequate COVID-19 response and protection plans, like hazard pay for employees and sanitation of buildings and businesses on the largest reservation in the country, according to Navajo Nation President Jonathan Nez, as IndianZreported.Nez stressed that the delay is significant since the CARES Act requires the tribes’ money to be spent by Dec. 31. “There’s a timeline on this,” Nez said, as as IndianZ reported. “We need to get those dollars to all the tribes across the country so they can help their citizens. We are wanting to use these dollars for the immediate needs.”
White House dismissal of COVID-19 concerns draws criticism -The White House has flouted public health advice on the coronavirus, drawing harsh criticisms from experts who fear the administration is sending the wrong message. Even as cases surge in Oklahoma, President Trump is moving forward with an indoor rally in Tulsa on Saturday, despite guidelines against holding such large gatherings from the Centers for Disease Control and Prevention (CDC). Trump and Vice President Pence have mostly brushed off the rising numbers of cases in states across the country, largely attributing them to increased testing.In a Gray TV interview earlier this week, Trump said the number of cases in Oklahoma was “very minuscule,” and the virus was “dying out.”In fact, Oklahoma has reported more than 1,100 new cases in just the past four days, with record high numbers twice in a week.Experts fear Trump’s dismissal of rising case numbers and the dangers of large gatherings gives the public the message that the virus is no longer a threat, and puts the country at risk of prolonging the crisis.”The consistent theme has been inconsistent messaging,” said Howard Koh, former assistant secretary for health at the Department of Health and Human Services under President Obama. “It just leads to public doubt and confusion, which weakens the chances of a coordinated national response,” added Koh, who now teaches at the Harvard School of Public Health.Trump and Pence have signaled a desire to reopen the country, and cheered governors for moving quickly despite states not meeting the CDC guidelines for reopening. In comments this week, both have signaled a desire to declare victory over the virus, and paint a picture of life returning to normal.
Arizona sheriff tests positive for coronavirus ahead of meeting with Trump An Arizona sheriff who in May said that he wouldn’t enforce a stay-at-home order imposed due to the coronavirus pandemic has tested positive for COVID-19. Mark Lamb, the sheriff of Pinal County, Ariz., revealed in a statement shared on Facebook on Wednesday that he received a positive test result after getting an invitation to meet with President Trump at the White House. Lamb was one of several officials invited to attend a White House meeting on law enforcement and the signing of Trump’s executive action on policing. Lamb said that he received a mandatory screening from the White House and that the test came back positive. “On Saturday, I held a campaign event, where it is likely I came into contact with an infected individual,” Lamb said, adding that he continued to be asymptomatic and would self-quarantine for two weeks. Lamb added that as “a law enforcement official and elected leader,” he does “not have the luxury of staying home.” “This line of work is inherently dangerous, and that is a risk we take when we sign up for the job,” he said. “Today, that risk is the COVID-19 virus.”
Republican congressman who just announced he has the coronavirus refused to wear a face mask on the House floor 2 weeks ago – Rep. Tom Rice, a South Carolina Republican, announced on Monday that he, his wife, and his son had been infected with the coronavirus. But just two weeks ago, Rice appeared on the House floor in Washington without a face covering.When CNN reporter Manu Raju asked Rice why he wasn’t wearing a mask in the chamber on May 28, the congressman said he could maintain at least 6 feet of distance from everyone on the floor and in the halls of the Capitol and therefore didn’t need to wear a mask. COVID-19 can spread even from asymptomatic carriers.”I do wear it sometimes on the floor,” he told Raju in May. “I make an effort to … stay 6 feet away from folks in accordance with guidelines. And when I’m forced into a situation where I can’t do that – like on a plane – I do wear a mask.” The Centers for Disease Control and Prevention recommends everyone wear a cloth face covering when they cannot maintain at least 6 feet of distance from others. Rice announced in a Monday Facebook post that he and his family had contracted the virus and were recovering from COVID-19, which he referred to as the “Wuhan Flu.” “I wanted to let you know that all 3 members of our household: Wrenzie, our son Lucas, and I all have the Wuhan Flu. We are all on the mend and doing fine,” Rice wrote. “COVID-19 is a serious, sometimes deadly illness. We, however, have fared well.” Rice said that while the virus was “not bad for me,” his son suffered from “a high fever and really bad cough.” The congressman may have already contracted the virus, and could have spread it to others, when he spent time in the halls of Congress in late May.
Trump mocks Biden event that practiced social distancing –President Trump mocked former Vice President Joe Biden for practicing social distancing during a campaign event in the Philadelphia suburbs on Friday. The president posted a photo of the gathering, where chairs are notably distanced from each other in accordance with guidelines from public health officials. “Joe Biden’s rally. ZERO enthusiasm!” tweeted Trump, who is hosting a campaign rally in Tulsa, Okla., on Saturday. Trump’s scheduled rally has stirred controversy from local officials, who worry that it could exasperate the spike in coronavirus cases the city is currently experiencing. The rally is expected to fill the 19,000-plus seat arena and the campaign announced it is preparing for an overflow in the number of attendees. On Friday, the Oklahoma Supreme Court denied a legal request to require that social distancing be enforced at the rally. The rally goes directly against the guidelines from the Centers for Disease Control and Prevention, which advises against large gatherings, particularly indoors. Oklahoma Supreme Court denies appeal to enforce social distancing
Fauci and Birx advised Trump against holding Tulsa rally: report –Anthony Fauci and Deborah Birx, two of the most prominent members of the White House coronavirus task force, advised Trump against holding an in-person rally in Tulsa, Okla., this weekend, sources told NBC News. Both Fauci and Birx have voiced concerns about hosting the rally, which is set to congregate at least 19,000 people in Tulsa’s BOK Center. The event goes against guidelines in place by the Centers for Disease Control and Prevention and the White House. On Friday, the Oklahoma Supreme Court denied a legal request to require that social distancing be enforced at the rally. The Trump campaign said that attendees will be given temperature checks, masks and hand sanitizer before entering the arena. However, White House press secretary Kayleigh McEnany said Wednesday that wearing masks at the event would be a “personal choice.” According to NBC, Fauci and Birx have expressed a desire to continue making appearances at White House press briefings, which was a regular occurrence at one point during the pandemic. But sources told NBC that Trump is “annoyed” at the comments Fauci, the director of the National Institute of Allergy and Infectious Diseases, has made during media interviews. In an interview with the Daily Beast this week, Fauci said that if he had the opportunity, he would not attend the rally. Fauci told The Washington Post in a story published Friday that he has not met with President Trump as of late, but has met with Vice President Pence, who leads the task force, “then it goes up to the next level.” Trump has publicly expressed his frustration with Fauci at times, tweeting Friday that “Tony Fauci has nothing to do with NFL Football,” after Fauci told CNN on Thursday that it would be “very hard” for the NFL to have a season safely without having players in a “bubble,” which the league currently does not have plans for.
Wall Street Expects a Covid-19 Vaccine Before the U.S. Election -Wall Street predicts the White House will push through approval of one or maybe even two Covid-19 vaccines to help bolster Donald Trump’s chances before the U.S. presidential election. While scientists, including the nation’s top virus expert Anthony Fauci, have set their eyes on a vaccine by early 2021 at the earliest, sell-side research analysts have been bringing in experts to weigh in on the possibility of a shorter timeline — ahead of the Nov. 3 vote.That date is increasingly important as Democratic challenger Joe Bidengains steam, with more Americans scrutinizing the Trump administration’s handling of both the pandemic and the nation’s divisive racial inequities. There were 13 experimental coronavirus vaccines being tested in humans and more than 120 others in earlier stages of development, according to the World Health Organization’s latest count, although new trials are moving forward at record speed. Biotechnology and pharmaceutical companies including AstraZeneca Plc and Moderna Inc. have been ramping up production and promising supplies of millions of doses of their still experimental vaccines before the year ends.”All the datapoints we’ve collected make me think we’re going to get a vaccine prior to the election,” Jared Holz, a health-care strategist with Jefferies, said in a phone interview. The current administration is “incredibly incentivized to approve at least one of these vaccines before Nov. 3.”Holz is not alone in that view. Raymond James policy analysts wrote in a client note that “the Trump White House is putting tremendous pressure on the FDA to approve an emergency use authorization (EUA) for a vaccine prior to the election.”
The Fed’s Paycheck Protection Program Gave a Tiny NJ Bank $5.3 Billion – 9 Percent of all the Money It’s Spent Thus Far – Pam Martens – The Paycheck Protection Program (PPP) was authorized by Congress under the CARES Act and is being overseen by the Small Business Administration (SBA). The goal of the PPP program is to make 1 percent interest loans to small businesses experiencing hardship from the coronavirus crisis and then forgive the loans if the businesses keep their employees on the payroll.Even though the loans are guaranteed against losses by the SBA, the Federal Reserve launched its own program, called the Paycheck Protection Program Liquidity Facility, to reimburse lenders who make these loans. So far, the Fed has reimbursed $57 billion of these loans as of June 10, out of total loans approved by the SBA of more than $500 billion. The odd thing about those Fed reimbursements is that a stunning $5.3 billion in reimbursements, or 9 percent of the $57 reimbursed by the Fed, have gone to a tiny New Jersey bank, Cross River Bank. According to the SBA, as of May 30, there were 5,454 lenders that had made loans in the PPP program. Cross River Bank is just one of those 5,454 lenders and yet it received 9 percent of the Fed’s reimbursements. How does that make any sense? Wells Fargo has approximately 250,000 employees. According to the Federal Deposit Insurance Corporation (FDIC) it has 5,444 branches in 40 states in the U.S. The Fed’s transaction data for its PPP reimbursements do not show any PPP reimbursements to Wells Fargo. According to the FDIC, Cross River Bank has only one branch office and has been around for just 12 years. The $5.3 billion that the Fed has reimbursed to Cross River Bank is more than twice its total assets of $2.5 billion as of March 30. Cross River Bank has made more than 50 percent of the dollar amount that Wells Fargo has made in PPP loans but it has only 250 employees rather than the 250,000 employees working for Wells Fargo to review and process these PPP loans. But unlike in banks of yesteryear, virtually all Cross River’s lending officers aren’t human beings. They are apps. Cross River’s loans originate mostly from 15 or so buzzy venture-capital-backed financial technology startups, so-called fintechs, that go by names like Affirm, Best Egg, Upgrade, Upstart and LendingUSA. The fintechs provide the customers; Cross River provides the licenses and infrastructure. It holds 10% to 20% of each loan it issues, and the massive volume of fintech loans has propelled Cross River to $2 billion in assets, up from $100 million a decade ago.” In 2018 the FDIC found that Cross River Bank “engaged in unsafe or unsound banking practices by failing to ensure an adequate compliance management system was in place … .” The FDIC fined the bank $641,750 and made it contribute to a $20 million restitution fund to reimburse harmed consumers. The U.S. currently has the worst unemployment crisis since the Great Depression. The PPP program is a critical component in keeping small businesses alive and giving struggling workers a paycheck. Do we really want banks without human lending officers deciding who gets billions of dollars from this taxpayer-funded program?
Bank interest in Main Street Lending Program ‘substantial,’ Powell says – Federal Reserve Chairman Jerome Powell on Tuesday said financial institutions are showing interest in the central bank’s program to facilitate loans for midsize companies, and left open the possibility of additional stress tests to gauge how banks are dealing with the coronavirus crisis. In testimony before the Senate Banking Committee, Powell updated the lawmakers about the progress of a number of its emergency credit facilities – launched to combat the economic effects of the pandemic – including the Main Street Lending Program and the Municipal Liquidity Facility. The Main Street program, in which the Fed will participate in loans to small and medium-sized companies struggling from the pandemic, had prompted questions over its delayed launched and eligibility requirements. But after the central bank tweaked those requirements and opened up lender registration Monday, Powell said the Fed is pleased so far with the reception. There is “substantial interest on the part of bankers” in the Main Street program, Powell said. Powell told the committee that the Fed is still considering whether banks will need to resubmit their capital plans or conduct additional stress tests to take issues related to the pandemic into account. The central bank will announce a decision on June 25, when it also releases results from the Dodd-Frank Act Stress Tests and Comprehensive Capital Analysis and Review. Banks subject to the stress tests have also been required to undergo “sensitivity analyses” to assess the effects of the pandemic on their balance sheets. In addition to those analyses, Powell said the Fed is “actively engaged in considering” whether the banks will be required to do additional stress testing work related to the coronavirus crisis or resubmit their capital plans. Powell also continued to pour cold water on the potential for a Fed facility for mortgage servicers to cover skipped payments by homeowners hit by the pandemic. “I’d say we were more worried a couple of months ago about stresses building” in mortgage servicing “than we are now,” Powell said. “The stresses have moved down a little bit. Of course we’ll be monitoring that carefully, but as of right now, it doesn’t look like there is a need for such a facility.”
Why bankers remain unsold on Fed’s Main Street program – Although the Federal Reserve’s loan program aimed to help small and medium-sized businesses weather the coronavirus pandemic has been months in the making, many bankers are still on the fence about participating. The Fed announced the $600 billion Main Street Lending Program in April, saying the central bank would backstop coronavirus relief loans for middle-market firms with up to 15,000 employees or $5 billion in annual revenue. The Federal Reserve Bank of Boston, which is administering the program, opened up registration to lenders June 15. But some banks – particularly community banks – are still trying to decide if it’s worth their while to sign up. “We’re still talking about it,” said Bob Fisher, president and CEO of the $485 million-asset Tioga State Bank in Spencer, N.Y., and incoming chairman of the Independent Community Bankers of America. “I would have to say we’re leaning towards not participating just because we really haven’t had a lot of demand from our customers.” Still, the head of the Boston Fed said Friday that over 200 financial institutions of varying asset sizes had registered as of Thursday. “These are still early days in the program, and we are seeing a steady stream of interest,” Eric Rosengren, president and CEO of the Boston Fed, said in a speech to the Greater Providence Chamber of Commerce. He added: “The institutions that have registered so far are geographically dispersed, representative of all 12 Federal Reserve districts. I am encouraged, too, by the interest of many smaller financial institutions like community banks.” Eligible businesses that were in sound financial condition before the pandemic are eligible to receive loans of at least $250,000 through one of three component facilities. The Fed, through the Main Street program, will then purchase 95% of each loan made under the program’s terms. But part of the quandary for community banks is determining whether they will have loan demand from business customers. Jim Donovan, the head of commercial and industrial lending at Bryn Mawr Trust in Pennsylvania, said the $4.9 billion-asset bank has had “very little inquiry” from potential borrowers. The institution is still trying to decide whether or not it wants to participate in the Fed program after receiving high demand for loans under the Small Business Administration’s Paycheck Protection Program.
Small change is becoming a big problem for banks – Federal Reserve Chairman Jerome Powell told Congress Wednesday that the central bank is attempting to rectify a shortage of coins being delivered to financial institutions around the country as a result of the coronavirus pandemic. “With the partial closure of the economy, the flow of coins though the economy has kind of stopped,” Powell said at a House Financial Services Committee hearing one day after he testified to the Senate Banking Committee. Powell encouraged banks to reach out to their regional Federal Reserve banks to deal with the operational challenge of an interruption in coin delivery. The hearing also highlighted Powell’s support for temporarily easing a capital rule known as the Collins amendment in order to help banks better confront the pandemic crisis. But he opposed a plan proposed by Democrats to give consumers digital wallets housed at the Fed as a means of accessing coronavirus relief payments. Members of the committee from both parties, meanwhile, praised Powell for the central bank’s handling of the economy through the coronavirus pandemic, bucking some of the criticism he has received from President Trump during his tenure. “It’s amazing to see what you’ve done, the impact it’s had, and we certainly appreciate all of your efforts,” said Rep. Blaine Luetkemeyer, R-Mo. The discussion of coin shortages came after Rep. John Rose, R-Tenn., told Powell that a number of banks in his district do not know how to deal with a low supply of coin money for their customers. “I received a call from a bank here in Tennessee’s sixth congressional district yesterday alerting me to the fact they have been notified at the beginning of this week at the Fed that they would only be receiving a small portion of their weekly order of coinage,” Rose said. “According to this banker, his institution will likely run out of coins by Friday or this weekend. And after some preliminary research, I found that many other banks across my district are having the same operational challenge.” Powell said the partial closings of the economy have led to clogging in the circulation of coins. Regional banks should be able to assist banks coping with coin shortages, he added. “The whole system of flow has kind of come to a stop,” Powell said. “We are well aware of this. We are working with [the U.S. Mint] and we are working with the reserve banks. And as the economy reopens, we are seeing coins begin to move around again. So if a bank hasn’t already done so, they should certainly be in touch with their reserve bank to report this situation.”
‘Another unprecedented period’: FDIC reports dramatic 1Q profit drop – Banking industry profits were walloped in the first quarter of 2020 as the coronavirus pandemic took an immediate toll on the economy, the Federal Deposit Insurance Corp. said Tuesday. The FDIC’s Quarterly Banking Profile paints a dour picture for the U.S. banking sector during the three months that ended March 31. The virus outbreak took hold in March and banks finished the quarter with $18.5 billion in net income, a precipitous fall of 69.6% compared with the year-earlier period. The pain was widespread; the FDIC said more than half of all banks reported a decline in annual net income. “The FDIC was born out of a crisis, and we now find ourselves in the midst of another unprecedented period,” FDIC Chairman Jelena McWilliams said in a statement accompanying the report. She cited the pandemic and its “attendant economic downturn,” which resulted in a 5% drop in GDP during the first quarter that “adversely affected several industry sectors and financial markets.” A big driver of the profit decline was a dramatic increase in reserves banks set aside to prepare for future losses. Citing “deteriorating economic conditions” as well as the implementation by some banks of the Current Expected Credit Losses accounting methodology, the FDIC reported that provisions for credit losses increased by $38.8 billion to a total of $52.7 billion, an increase of nearly 280% from a year earlier. McWilliams stressed that she believes the nation’s banks remain a source of strength for the economy, given their continued role in working with customers affected by the pandemic. “Although bank earnings were negatively affected by increases in loan-loss provisions, banks effectively supported individuals and businesses during this downturn through lending and other critical financial services,” she said. The FDIC’s report is one of the most comprehensive looks at how the financial sector has been affected by the pandemic. However, since it covers a quarter that ended in March, the report captures only a sliver of the impact of the COVID-19 crisis.
Banks’ dividend payouts could hinge on COVID-19 stress tests: Quarles – The Federal Reserve will use the outcome of a supplemental test of large banks’ pandemic response to help determine whether institutions can make planned capital distributions, a top Fed official said Friday. However, the results of that COVID-19 analysis will not be disclosed publicly. Fed Vice Chairman for Supervision Randal Quarles detailed the process of conducting so-called sensitivity analyses, which are being added to the standard annual stress tests given to the largest banks to assess the strength of their balance sheets in the current economic downturn and various recovery scenarios. He explained that the analyses will work effectively as a modified stress tests that factor in three different scenarios for an economic recovery following the pandemic. The assessments will adjust the unemployment rate, gross domestic product and Treasury rates based on three scenarios: a V-shaped economic recovery, a U-shaped recovery and a W-shaped recovery. The last implies a second round of social distancing and business closures. The central bank added the sensitivity analyses in part because the standard cycle of stress tests this year – the results of which will be released next week – do not incorporate the dramatic economic impact of the pandemic. “Although we didn’t run our full stress test on these three possible downside risk paths for the economy, and while our adjustments only capture the most material changes in balance sheets since last year, this sensitivity analysis has helped sharpen our understanding of how banks may fare in the wide range of possible outcomes,” Quarles said at a virtual event with the group Women in Housing and Finance. The sensitivity analyses will be used in part to inform the Fed’s decision about a firm’s dividend plans, Quarles said. “The sensitivity analysis will help us judge whether banks would have enough capital if economic and financial conditions were to worsen,” he said.
Banks at a loss what to do with glut of deposits – Banks have had no problem gathering deposits during the coronavirus pandemic. The challenge is what to do with them until the economy recovers and loan demand returns. Deposits at banks jumped by 13.3% in the first quarter from a year earlier, to $15.8 trillion, the biggest year-over-year increase measured by the Federal Deposit Insurance Corp. The industry’s loan-to-deposit ratio fell from 71.9% to 68%. Fed data has since highlighted several weeks of double-digit deposit growth in the second quarter, including the week that ended June 3. Several factors are at work. Consumers and companies were hoarding cash during the earliest days of the outbreak. And many small businesses have been holding onto funds from the Paycheck Protection Program, which launched in April, while determining how to navigate the forgiveness process. Low-cost funding is invaluable for banks, especially when they have an opportunity to use the money to add higher-yielding assets. But the interest rate on PPP loans was capped at 1% and other lending opportunities are few and far between. Those factors, along with near-zero interest rates, could eventually pinch margins and further pressure profits, industry experts warn. “Deposit growth continues to outpace loan growth by a very wide margin, which will surely be a factor in NIM compression as banks appear to be awash in liquidity,” said Scott Siefers, an analyst at Piper Sandler. The banking industry’s net interest margin compressed by 29 basis points in the first quarter from a year earlier, to 3.13%, according to the FDIC. The yield on earning assets shrank by 54 basis points, to 3.87%. At the $77 million-asset American Metro Bank, which focuses on Chicago’s Chinatown community, Chairman and CEO Patrick McShane said that, since the onset of the pandemic, deposits have increased by about 8% on an annualized basis. The growth was notable given that the bank had not set out to add deposits in the first half of the year. McShane attributed the growth in large part to the PPP as new and existing customers deposited funds prior to deploying them. McShane said he hopes to eventually use the funds to help Chinatown’s restaurants and shops find their footing as Chicago gradually reopens. “A whole lot of uncertainty” remains, McShane said. “There’s been a lot of pain, and while we’ll do everything that we can to help restore businesses, it’s not clear how many will survive this.” If another wave of coronavirus forces a second shutdown, “it’s hard to imagine the fallout … and the damage it could do across commercial real estate,” he added.
Banks back bill to eliminate brokered deposit restrictions – The banking industry is throwing its weight behind legislation that would eliminate restrictions on brokered deposits and replace them with limits on asset growth for struggling banks. The bill, introduced by Sen. Jerry Moran, R-Kan., this week, would effectively dismantle Section 29 of the Federal Deposit Insurance Act by striking references to “brokered deposits” and replacing them with “asset growth restrictions.” Banks have sought to paint the current definition of brokered deposits as overly broad and out of date. The classification has important implications; banks that are not well capitalized face restrictions on accepting brokered funds. Those restrictions are meant in part to discourage struggling banks from overrelying on brokered deposits to fund overheated growth. But the legislation would aim to limit that growth more directly. The bill would introduce a new regulatory framework that imposes “maximum levels of growth in average total assets that an insured depository institution that is less than well capitalized may not exceed, and provide appropriate adjustments for growth resulting from corporate restructuring such as acquisitions or mergers,” according to the text. After Moran’s bill was introduced in the Senate, the American Bankers Association, a longtime critic of brokered deposit restrictions, released a letter of support. “This is a much-needed measure to ensure that banks of all sizes have access to a stable and diverse funding base, and are able to innovate to meet the needs and expectations of their customers,” James Ballentine, executive vice president of congressional relations at the ABA, said in the letter, which was addressed to Moran.
If the Fed Is Being Honest that Citigroup is Well Capitalized, Why Did It Need $3 Billion from the Fed’s Paycheck Protection Program? – There is fresh evidence that Citigroup, the mega Wall Street bank that was insolvent but still illegally propped up by the Fed during the last financial crisis (to the tune of $2.5 trillion cumulatively in secret loans for two and one-half years) is back to drinking at the Fed’s trough.The Fed has set up a program called the Paycheck Protection Program Liquidity Facility (PPPLF). That Fed program is reimbursing small banks for the small business loans that they made under the Paycheck Protection Program which was established by Congress in the CARES Act and being overseen by the Small Business Administration (SBA). According to the Fed, the idea is to reimburse these banks around the country for the PPP loans so that they can make fresh loans to other struggling consumers and businesses. The banks simply post the PPP loans they have made as collateral and the Fed reimburses them. As of last Wednesday, the Fed had reimbursed $57 billion thus far. The SBA has guaranteed the loans against default so the banks are not at risk if they choose to keep the loans on their books.As of last Wednesday, not one mega Wall Street bank other than Citigroup had taken any of this Fed money. There was no JPMorgan Chase, no Wells Fargo, no Bank of America, no Morgan Stanley, no Goldman Sachs Bank USA on the Fed’s list of reimbursements. The name of Citigroup’s commercial bank, Citibank, however, appeared 34 times. The tally of Citibank’s reimbursements on PPP loans from the Fed totaled $3.077 billion. That fact doesn’t square with the narrative from Fed Chairman Jerome Powell about the condition of these mega banks on Wall Street.Powell has had two consistent messages at his press conferences and testimony before Congress: those messages are that the mega banks that the Fed supervises went into the coronavirus crisis “well capitalized” and that has made them “a source of strength” in the crisis. If this turns out to be a lie, Powell will be humiliated in Congressional hearings in a manner similar to the feckless former Fed Chairman Alan Greenspan. The Fed would then, necessarily, be stripped of its supervisory role over Wall Street banks for allowing two unprecedented banking collapses in a period of 12 years. Thus, it’s essential to Powell to deal decisively with any facts that get in the way of his narrative. Yesterday, Powell testified at a House Financial Services Committee virtual hearing. He was asked multiple times about the dangers of Collateralized Loan Obligations (CLOs) to the big banks. That danger has been raised in recent days in an attention-grabbling headline at The Atlantic, “The Looming Bank Collapse.” The article was penned by law professor Frank Partnoy, who likely has a better grasp of these matters than Powell since he was previously a fixed income derivatives specialist at Morgan Stanley and CS First Boston.
Deutsche Bank Settles Swap Reporting Outage, Spoofing Violations – WSJ – The bank has agreed to pay more than $10 million to settle two separate cases by a derivatives market regulator Deutsche Bank will pay $9 million to settle claims stemming from an outage in 2016 of its swaps reporting platform, the U.S.’s derivatives market regulator said Thursday. The fine by the Commodity Futures Trading Commission appears to close the book on longstanding issues related to information the bank is required to provide regulators about its swaps reporting business.
Is it safe for bank examiners to return to the field?- – Comments by the head of the U.S. national bank regulator touting the benefits of in-person supervision has ignited a debate over how quickly examiners should plan to be physically inside bank branches and headquarters during the pandemic. Acting Comptroller of the Currency Brian Brooks said in an American Banker op-ed that bank “examination is a human endeavor … that works best face to face.” Brooks did not say when on-site exams would resume at the Office of the Comptroller of the Currency, which like all agencies has conducted remote oversight amid the health emergency, but he told the ABA Banking Journal that agency offices will reopen June 21. With coronavirus cases still on the rise in several states, workplace health experts says it is possible to manage the risks of in-person bank examination responsibly. But bankers and some other observers are urging caution about the pace of regulators’ re-entry into financial institutions. “The regulators are going to do what they want to do, but I’d say there’s no need to rush this,” said Brad Bolton, the CEO of the $153 million-asset Community Spirit Bank in Red Bay, Ala., which is supervised by the Federal Deposit Insurance Corp. “We’re still limiting how we work with vendors and receive deliveries. I think regulators should respect that, and let it be our choice. If a bank is comfortable with receiving examiners, sure.” Brooks was the first regulator to signal a resumption of on-site exams. His comments followed an earlier call he made to mayors and governors to weigh the economic risks of “indefinite shutdowns” meant to combat the spread of the coronavirus. OCC Chief Operating Officer Blake Paulson said Monday the agency still intends to make use of remote monitoring methods. “The agency has learned the benefits of performing some examination activities remotely and appreciates the flexibility banks and examiners have shown during this pandemic to support the ongoing supervision of national banks and federal savings associations,” Paulson said. “We will continue to use this flexibility as long as necessary.” But even though the agency is focused on the health of its examiners, Paulson said, in-person supervision has benefits that the current process lacks. “The health and safety of its employees is a primary concern for the Office of the Comptroller of the Currency, and the agency will follow recommendations of the Centers for Disease Control and Prevention and consider local factors, including precautions regarding travel, as we resume on-site examinations,” he said.
Coronavirus Bankruptcies Are Coming – The New York Times – Experts foresee so many filings in the coming months that the courts could struggle to salvage the businesses that are worth saving. Already, companies large and small are succumbing to the effects of the coronavirus. They include household names like Hertz and J. Crew and comparatively anonymous energy companies like Diamond Offshore Drilling and Whiting Petroleum.And the wave of bankruptcies is going to get bigger. Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for so-called mega bankruptcies – filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies – at least $100 million – to challenge the record set the year after the 2008 economic crisis.Even a meaningful rebound in economic activity over the coming months won’t stop it, said Mr. Altman, the Max L. Heine professor of finance, emeritus, at New York University’s Stern School of Business. “The really hurting companies are too far gone to be saved,” he said. Many are teetering on the edge. Chesapeake Energy, once the second-largest natural gas company in the country, is wrestling with about $9 billion in debt. Tailored Brands – the parent of Men’s Wearhouse, Jos. A. Bank and K&G – recently disclosed that it, too, might have to file for bankruptcy protection. So did Weatherford International, an oil field services company that emerged from bankruptcy only in December. More than 6,800 companies filed for Chapter 11 bankruptcy protection last year, and this year will almost certainly have more. The flood of petitions from the worst economic downturn since the Great Depression could swamp the system, making it harder to save the companies that can be rescued, bankruptcy experts said. Most good-size companies that go into bankruptcy try to restructure themselves, working out payment agreements for their debts so they can stay open. But if a plan can’t be worked out – or isn’t successful – they can be liquidated instead. Equipment and property are sold off to pay debts, and the company disappears. Without reform in the system, “we anticipate that a significant fraction of viable small businesses will be forced to liquidate, causing high and irreversible economic losses,” a group of academics said in a letter to Congress in May. “Workers will lose jobs even in otherwise viable businesses.”
Is this the nuttiest risk factor of all time? -Hertz, the bankrupt car rental company which has become the poster-child for the current market’s speculative excess over the past fortnight, just filed this with the SEC. In case you’re wondering what that is, it’s the document outlining the company’s unprecedented $500m share sale which was sanctioned by American courts Friday night. Despite, we should add, the shares likely being worth zero.Don’t believe us? Here’s the relevant risk factor, just in case a prospectivebagholder shareholder complains after this rental clown-car skids off the road (from the filing, with our emphasis): As previously disclosed, on May 22, 2020, we filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, thereby commencing the Chapter 11 Cases for certain debtors, including Hertz Global Holdings, Inc. The price of our common stock has been volatile following the commencement of the Chapter 11 Cases and may decrease in value or become worthless. Accordingly, any trading in our common stock during the pendency of our Chapter 11 Cases is highly speculative and poses substantial risks to purchasers of our common stock. As discussed below, recoveries in the Chapter 11 Cases for holders of common stock, if any, will depend upon our ability to negotiate and confirm a plan, the terms of such plan, the recovery of our business from the COVID-19 pandemic, if any, and the value of our assets.Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels. We also expect our stockholders’ equity to decrease as we use cash on hand to support our operations in bankruptcy. Consequently, there is a significant risk that the holders of our common stock, including purchasers in this offering, will receive no recovery under the Chapter 11 Cases and that our common stock will be worthless. But who cares? If the people want equity, let them have it. Just don’t say they weren’t warned.
Consumer advocates allege bias in CFPB task force — Consumer advocates have sued the Consumer Financial Protection Bureau and Director Kathy Kraninger over the creation of a task force established to recommend changes in regulatory policy. The lawsuit filed Tuesday alleges the CFPB and Kraninger were biased in choosing the five-member task force chaired by Todd Zywicki, a law professor at George Mason University’s Antonin Scalia Law School. The lawsuit alleges that Kraninger and the CFPB violated the Federal Advisory Committee Act of 1972, a so-called sunshine law, that sets requirements for federal advisory committees including that they be essential, in the public interest, fairly balanced, and structured to avoid inappropriate influence. The lawsuit was filed in U.S. District Court for the District of Massachusetts by the National Association of Consumer Advocates, U.S. Public Interest Research Group, and Kathleen Engel, a research law professor at Suffolk University and former member of the CFPB’s consumer advisory board. “The fundamental flaw of the task force is its single-minded focus on protecting the industry that the CFPB is supposed to regulate,” the lawsuit states. “Defendants never made the requisite findings that the task force is essential and in the public interest.” Last week, Zywicki wrote in a blog post that the task force had planned a “vigorous schedule” of public engagements before the pandemic hit, to hear as many perspectives as possible. Zywicki, a senior fellow at the Cato Institute and co-author of “Consumer Credit and the American Economy,” held a “listening session” in March with various consumer advocates and trade groups. He plans to announce one public hearing for later this summer “at a time and in a format that enables participation consistent with the safety of all participants.” The comment period closed June 1 on a request for information by the CFPB to help identify areas of consumer protection that the committee should focus its research and analysis on during its one-year appointment. A group of 27 consumer, community and civil rights groups wrote a letter to Kraninger June 1 calling the task force “illegitimate, one-sided and highly inappropriate during a pandemic.” The group alleged the task force is made up “solely of five outside conservative academics and industry lawyers, including those who have represented payday lenders or others in CFPB enforcement actions and consumer litigation, and has no consumer representatives.”
Podcast: CFPB’s independence is on trial. Other regulators are watching. – The Supreme Court is poised to decide the fate of the Consumer Financial Protection Bureau’s leadership structure, but the implications could reach far beyond the bureau.
TD’s answer to a pandemic-driven spike in wire fraud – The banking industry has seen an escalation in fraud attempts involving commercial wire transfers since the coronavirus pandemic began, and is educating business customers and employees about how to spot scammers and establish proper controls to deter them. Criminals have latched on to the fact that businesses’ communication channels and controls around wire transfers have been disrupted with so many people working from home, according to Tom Gregory, manager of treasury management sales at TD Bank. And it’s harder to identify phony wire transfers. “Everything else is unusual – why would this be any more unusual than anything else?” Gregory said in reference to many business activities lately. “And so people are not seeing the red flags that they might see in a normal work environment.” Other banks and their customers will have to be on guard, too, as the FBI warned in April that it anticipates a rise in business email compromise schemes related to the COVID-19 outbreak. Not that fraud wasn’t already a problem. Indeed, 76% of businesses surveyed by Strategic Treasurer this year said fraud risks had risen in the previous 12 months. And, in a separate survey, 36% of firms said they had experienced an increase in fraud attempts since the shift to a work-from-home environment. The risks tied to wire transfers conducted from home are greater than in an office because authentication and network security tend to be more lax, said Craig Jeffery, managing partner at Strategic Treasurer. What worries him most, he said, is that “the bad actors are far more sophisticated and patient, they have better tools and they’re automated, and they continue to learn. The threat level continues to systematically increase. And that means that the defense level has to correspondingly increase to combat that.” The average payout of a successful business email compromise is $130,000, Jeffery said. Companies try to protect their systems with network security firewalls and encryption as well as training people to not fall for phishing emails, he said. But many organizations don’t lock down their payment processes, leaving them vulnerable to being manipulated and exploited. The $383 billion-asset TD Bank, the U.S. arm of TD Bank Group in Toronto, has found its share of customers falling for fake wire transfer requests. In one case, a hacker broke into a Zoom training session at one of TD Bank’s business clients, stole an email address from it and used that to break into the company’s computers with malware and hold it for ransom. “Thankfully, this company had all their data backed up and told the criminal to go pound sand,” Gregory said. “But Zoom wasn’t a thing really until this whole COVID-19 lockdown came upon all of us.”
Millions of loans payments skipped as coronavirus slows economy: report – Since the start of the coronavirus pandemic in the U.S., Americans have skipped payments on 100 million student loans, auto loans and other forms of debt, according to The Wall Street Journal. The number of people who deferred payments or enrolled in forbearance or some other type of relief since March 1 rose to 106 million at the end of May, which is three times higher than it was at the end of April, the Journal reported. Within student loans, 79 million accounts are in deferment or other relief status, up from 18 million a month earlier. Auto loans in some type of deferment doubled to 7.3 million accounts, and personal loans in deferment doubled to 1.3 million accounts. The rise in loan deferments came after the economy plummeted following widespread shutdowns. The federal government has instructed loan providers to allow borrowers to defer to a certain extent. The stimulus package passed in March allowed most borrowers to stop making monthly payments through Sept. 30 on federal student loans. The package also allowed homeowners hurt by the coronavirus or its economic fallout to ask their mortgage lenders for permission to pause their payments for up to 12 months. Several credit card, auto loan and personal loan lenders continue to allow consumers to skip or pause payments while they weather the economic blow of the pandemic.
FHFA identifies supervisory concerns at two Federal Home Loan banks – The Federal Housing Finance Agency identified several safety and soundness concerns with the Federal Home Loan Bank of Des Moines and the Federal Home Loan Bank of San Francisco in examinations conducted last year, the agency said in its annual report to Congress published Monday. Although the FHFA said that the San Francisco bank had maintained a satisfactory financial position with strong capital and liquidity, the agency flagged concerns with the bank’s credit risk underwriting and credit risk management, compliance with rules and regulations, and collateral management practices. In the case of the Des Moines bank, the FHFA determined that its issues were pronounced enough that the agency has heightened its oversight of the bank and is working closely with the bank’s president and CEO, Kristina Williams, who came aboard in January. The Des Moines bank similarly had stable financials, but the FHFA cited several supervisory issues, including with the bank’s management. Examiners also found that the bank had high operational risk and poor operational risk management practices, as well as weak contingent funding plans and intraday funds management practices. The FHFA also found that both banks needed to improve their diversity and inclusion programs, along with the Home Loan banks of New York, Cincinnati and Chicago. The FHFA issued findings to each of these banks requiring them to address deficiencies in their programs. Although the Federal Home Loan banks fly under the radar compared with the government-sponsored enterprises Fannie Mae and Freddie Mac, they are an important source of low-cost liquidity for their members including federally insured banks and credit unions, nondepository community development financial institutions and non-federally insured credit unions. Examiners found that capital management practices and earnings were either strong or satisfactory at all 11 of the Home Loan banks in 2019, but that advances decreased for the second straight year in 2019, with all but one bank reporting diminished advances.
Federal housing agencies extend foreclosure moratorium to Aug. 31 – The Federal Housing Finance Agency is extending its foreclosure and eviction moratorium for single-family loans backed by Fannie Mae and Freddie Mac until at least Aug. 31 to protect borrowers and renters during the coronavirus pandemic. Previously the moratorium was set to expire June 30. It is the second time the agency has pushed back the moratorium, which was originally set to last until May 17. The Federal Housing Administration also said Wednesday that it would join the FHFA in extending its foreclosure and eviction moratorium until Aug. 31. “During this national health emergency no one should worry about losing their home,” FHFA Director Mark Calabria said in a press release. The Department of Housing and Urban Development said that the FHA’s extension would give “peace of mind” to homeowners working to recover financially from the pandemic. “FHA is committed to working with borrowers impacted by COVID-19 and this second extension of the foreclosure and eviction moratorium is another sign of the unprecedented steps HUD is taking to assist those impacted by this terrible pandemic,”acting FHA Commissioner Len Wolfson said in a press release. The Coronavirus Aid, Relief and Economic Security Act, which Congress passed in March, allowed for a 60-day moratorium on foreclosures and evictions on properties financed through federally backed mortgages. But the FHFA along with the Federal Housing Administration also imposed their own moratoriums independent of the CARES Act. Lawmakers on the Senate Banking Committee had pressured Calabria as well as HUD Secretary Ben Carson last week to extend the moratorium, expressing concern about an impending “housing cliff” when several CARES Act provisions – including enhanced unemployment benefits – are set to run out last month. At the time, Calabria said he expected his agency to push back the moratorium by only a month.
MBA Survey: “Share of Mortgage Loans in Forbearance Increases Slightly to 8.55%” 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 Slightly to 8.55%: The Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance increased from 8.53% of servicers’ portfolio volume in the prior week to 8.55% as of June 7, 2020. According to MBA’s estimate, almost 4.3 million homeowners are now in forbearance plans….”MBA’s survey results from the first week of June showed a slight uptick in the overall share of loans in forbearance, but this increase was primarily driven by a larger share of portfolio and PLS loans in forbearance. Half of the servicers in our sample saw the forbearance share decline for at least one investor category,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “Although there continues to be layoffs, the job market does appear to be improving, and this is likely leading to many borrowers in forbearance deciding to opt out of their plan.” Added Fratantoni, “With June mortgage payments due, servicers did report the first increase in forbearance requests in two months. The level of forbearance requests is still quite low, but there was a noticeable increase in call volume over the course of the week.” This graph shows the percent of portfolio in forbearance by investor type over time. Most of the increase was in late March and early April.The MBA notes: “Forbearance requests as a percent of servicing portfolio volume (#) increased across all investor types for the first time since the week of March 30-April 5: from 0.17% to 0.19%.”
Black Knight: Number of Homeowners in COVID-19-Related Forbearance Plans Declines Slightly for the third 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 fell again this week. Overall, the number of active forbearance plans is down 57K from last week, and 158K from the peak the week of May 22. As of June 16, 4.6 million homeowners remain in forbearance plans, representing 8.7% of all active mortgages, down from 8.8% last week. Together, they represent just over $1 trillion in unpaid principal ($1,012B). Some 6.8% of all GSE-backed loans and 12.1% of all FHA/VA loans are currently in forbearance plans.
The Economy Is in Disarray. But Borrowers Aren’t Getting Home-Equity Lines. – WSJ – Millions of Americans are out of work. But for many, tapping their home equity isn’t an option. New home-equity lines of credit dropped 19% from March through May compared with the same time last year, according to preliminary data from credit-reporting firm Equifax Inc. Many lenders are getting stricter about offering the credit lines, known as Helocs. Both JPMorgan Chase and Wells Fargo have temporarily stopped accepting new Heloc applications, and other lenders have tightened standards. Banks are trying to protect themselves from the big losses they suffered in the 2008 crisis, when borrowers who had been using their homes as ATMs defaulted as housing prices unexpectedly tanked. But the lenders’ caution means that in many cases borrowers who thought they would be able to fall back on their home equity in a crisis can’t do so now. U.S. banks’ holdings of home-equity lines of credit were down more than 9% from a year earlier as of early June, the largest decline on record, according to Federal Reserve data. Originations of home-equity loans, another popular way for borrowers to pull cash out of their homes, fell 43% from March through May, according to Equifax. The amount of equity Americans have in their homes has been rising for almost a decade, boosted by resilient home price growth. Some homeowners remember the financial crisis and are wary of relying too much on home equity. But out-of-work borrowers and others who could benefit from Helocs might be locked out by lofty lending requirements, economists said. “These homeowners may be the ones that no longer qualify because they’ve suffered an economic injury like a job loss,” said Ralph McLaughlin, chief economist at Haus, a home-finance startup. The tricky logistics of lending in a pandemic might also be muting Helocs. For example, they sometimes require an appraisal, which can be harder to execute under stay-at-home orders. There are a few ways that borrowers can pull cash out of their homes, often using the money for luxuries such as home renovations and necessities including medical bills. Helocs are somewhat similar to credit cards: Borrowers can apply for them and then use when needed. Though getting a Heloc now might be difficult, homeowners who already have one should be able to tap into it. Home-equity loans, on the other hand, are generally lump-sum payments with a fixed repayment schedule.
Housing Starts increased to 974 Thousand Annual Rate in May – From the Census Bureau: Permits, Starts and Completions: Privately-owned housing starts in May were at a seasonally adjusted annual rate of 974,000. This is 4.3 percent above the revised April estimate of 934,000, but is 23.2 percent below the May 2019 rate of 1,268,000. Single-family housing starts in May were at a rate of 675,000; this is 0.1 percent above the revised April figure of 674,000. The May rate for units in buildings with five units or more was 291,000. Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,220,000. This is 14.4 percent above the revised April rate of 1,066,000, but is 8.8 percent below the May 2019 rate of 1,338,000. Single-family authorizations in May were at a rate of 745,000; this is 11.9 percent above the revised April figure of 666,000. Authorizations of units in buildings with five units or more were at a rate of 434,000 in May.The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) were up in May compared to April. Multi-family starts were down 33.1% year-over-year in May. Single-family starts (blue) increased slightly in May, and were down 17.8% year-over-year. Total Housing Starts and Single Family Housing StartsThe second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and then eventual recovery (but still historically low). Total housing starts in May were well below expectations, and starts in April were revised down. Residential construction is considered an essential business, and held up better than some other sectors of the economy, but was still negatively impacted by COVID-19.
Comments on May Housing Starts – McBride – Although housing starts declined significantly in April – and remained fairly low in May – residential construction is considered essential, and starts did not decline as sharply as some other sectors.Based on builder reports, and recent housing activity, I expect a significant increase in single family starts over the next couple of months.Earlier: Housing Starts increased to 974 Thousand Annual Rate in MayTotal housing starts in May were well below expectations, and revisions to prior months were negative (combined).The housing starts report showed starts were up 4.3% in May compared to April, and starts were down 23.2% year-over-year compared to May 2019. Single family starts were down 17.8% year-over-year, and multi-family starts were down 33.1% YoY.This first graph shows the month to month comparison for total starts between 2019 (blue) and 2020 (red) Starts were down 23.2% in May compared to May 2019.Last year, in 2019, starts picked up in the 2nd half of the year, so the comparisons are easy early in the year. Starts, year-to-date, are only down 2.4% compared to the same period in 2019.Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). The rolling 12 month total for starts (blue line) increased steadily for several years following the great recession – then mostly moved sideways. Completions (red line) had lagged behind – then completions caught up with starts- although starts picked up a little again lately. The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion – so the lines are much closer. The blue line is for single family starts and the red line is for single family completions. Note the relatively low level of single family starts and completions. The “wide bottom” was what I was forecasting following the recession, and now I expect some further increases in single family starts and completions once the crisis abates.
NMHC: Rent Payment Tracker Finds 89 Percent Paid Rent as of June 13th, Same Pace as last year! – From the NMHC: NMHC Rent Payment Tracker Finds 89 Percent of Apartment Households Paid Rent as of June 13: The National Multifamily Housing Council (NMHC)’s Rent Payment Tracker found 89.0 percent of apartment households made a full or partial rent payment by June 13 in its survey of 11.4 million units of professionally managed apartment units across the country. This is a 0.1-percentage point increase from the share who paid rent through June 13, 2019 and compares to 87.7 percent that had paid by May 13, 2020. These data encompass a wide variety of market-rate rental properties across the United States, which can vary by size, type and average rental price. “Once again, it appears that residents of professionally managed apartments were able to largely pay their rent,” said Doug Bibby, NMHC President. “However, there is a growing realization that renters outside of this universe are experiencing profound hardships as the nation continues to grapple with historic unemployment and economic dislocation.”In the midst of a pandemic and a recession, it is critical that those on the front lines are safely and securely housed. Accordingly, we urge lawmakers to take swift action to create a Rental Assistance Fund and extend unemployment benefits so we can avoid future eviction-related problems and don’t undermine the initial recovery.”CR Note: It appears most people are still paying their rent. This was a higher percentage than in May (at the same point in the month), and actually up 0.1 percentage points from the same date a year ago.Several disaster relief programs have clearly helped renters pay their bills, such as the extra $600 per week in unemployment insurance, the PPP, and the Pandemic Unemployment Assistance (PUA). The PPP has been modified, but will need to be extended. And the $600 per week in extra benefits ends at the end of July (and will need to be extended, perhaps at a lower rate). The PUA program with 9.7 million participants (mostly self-employed), expires at the end of 2020, but these individuals have also being receiving the extra $600 per week that expires in July.
Retail Sales increased 17.7% in May — On a monthly basis, retail sales increased 17.7 percent from April to May (seasonally adjusted), and sales were down 6.1 percent from May 2019. From the Census Bureau report: Advance estimates of U.S. retail and food services sales for May 2020, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $485.5 billion, an increase of 17.7 percent from the previous month, but 6.1 percent below May 2019. Total sales for the March 2020 through May 2020 period were down 10.5 percent from the same period a year ago. The March 2020 to April 2020 percent change was revised from down 16.4 percent to down 14.7 percent.This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline were up 18.0% in April. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales, ex-gasoline, decreased by 3.9% on a YoY basis. The increase in May was well above expectations, and sales in March and April were revised up.
U.S. Retail Sales Rose Record 18% in May – WSJ – U.S. shoppers opened their pocketbooks at malls and auto dealerships in May as states eased restrictions to contain the novel coronavirus, boosting retail spending and adding another sign the economy is recovering from earlier lockdowns to contain the pandemic. Retail sales, a measure of purchases at stores, at restaurants and online, increased a seasonally adjusted 17.7% in May from a month earlier, the Commerce Department said Tuesday. Data released separately pointed to other signs of life in May for an economy that went into a deep freeze in mid-March when the pandemic hit the U.S. The Federal Reserve reported a moderate increase in May industrial production, including a pickup in manufacturing activity. A measure of builder confidence also improved. The increase in retail sales was the biggest in records dating back to 1992. Still, retail spending remained below pre-pandemic levels in May, totaling $485.5 billion compared with $527.3 billion in February. From a year earlier, retail sales were down 6.1% in May. “The U.S. consumer’s back big time and she’s spending,” said Craig Johnson, president of Customer Growth Partners, a retail consulting firm.May’s month-over-month jump followed the largest monthly drop on record in April, a revised 14.7% decline. The swing in retail sales reflected the nature of the shock from the pandemic, where the coronavirus and related lockdown shut off an economy that previously was growing at a steady pace – and reopenings restored at least some demand for goods. “The big question going forward is to what extent does employment snap back to precrisis levels,” a prerequisite for continued spending, said Joshua Shapiro, chief U.S. economist at MFR Inc. May’s unemployment rate dropped to 13.3% from 14.7%, and employers added 2.5 million jobs to payrolls, an improvement but far off the strong labor market before the pandemic.
Boats, Pools and Home Furnishings: How the Lockdown Transformed Our Spending Habits – A quiet reservoir of economic strength is forming among households flush with cash. And it is reviving consumer spending. The crisis caused by the coronavirus has pushed millions into unemployment and left them straining to get by. But many consumers in the U.S. and Europe who have held on to their jobs or are getting government benefits have seen their bank accounts swell during lockdowns, according to government data, because of restrictions on shopping and big-spending activities such as tourism. Consumers with means are driving surprising strength in a number of sectors. People are flocking to home-improvement stores and car dealerships. They want to install pools in their backyards and Jacuzzis in their bathrooms. Spending on furniture has jumped. So have sales of fitness and sports equipment. And with vacations and summer camps canceled and pool memberships on hold, families are looking for other ways to entertain themselves this summer. “I’ve got people I went to high school with who I haven’t spoken to in 20 years, asking how they can get a boat,” For those still employed, paychecks have continued to roll in. Many of those laid off or whose businesses are suffering also have cash in hand, at least for now, as governments step in to replace much of their lost income. These measures include checks sent directly to consumers and increased unemployment benefits. In Europe, governments are subsidizing tens of millions of paychecks in order to persuade companies to forgo layoffs. “People have a lot of purchasing power now,” said Samir Badouchi, commercial director at a tech startup, who bought some shoes and a T-shirt from Hermes in Paris days after France lifted its lockdown on May 11. “They’ve been at home and can’t spend for two months. No restaurants, no bars. People who go to sporting events can’t do that. They were forced to save.”
Restaurants Face Major Obstacles to Reopening – Yves Smith – A new story at the Wall Street Journal, ‘Running on Fumes’: Restaurants Trying to Reopen Face Cash Crunch, provides some key details on why many restaurants are having a hard time reopening. And mind you, the issues the Journal describes are in addition to ones typically cited, like how can they be profitable when they need to reduce table count or implement other measures to establish enough distancing to satisfy local requirements and/or skittish customers. Restaurants are a tough business. The famed factoid that nine out of ten businesses fail in the first three years is significantly due to the high mortality rate of new restaurants. And reopening in the Covid-19 era, with having to make significant operational changes on top of typically being seriously behind on bills, arguably has a similar level of difficulty to starting afresh.The Journal states that 3% of the restaurants have already gone out of business. In Birmingham, a foodie town, I’ve already encountered three that have died, and it’s not as if I’ve gone looking. The high-end restaurants here, save the Ruth Chris, which already had a lot of space between tables, are only doing takeout. The chart below, at the Journal site, cycles through the various cities. Another not-good sign is that many show a recent decline after some recovery. Is this fear of a resurgence? Or a flattening after pent-up demand was satisfied? The Journal sets forth specific adversities for restaurants. The biggie is paying off debts to their suppliers. Restaurants usually pay 30 days in arrears, so they sell the food a nd get the income before they have to pay their vendors. But in many cities, the shutdown orders blindsided the restaurants, leaving them with supplies on hand that went unused. Suppliers are requiring that restaurants pay the amounts owed or at least come up with a plan as to how they will make good or else. ike DeNiro, vice president of LaSource Group, a restaurant supplier debt collector, told the Journal that May had been his most active month ever, confirming that many restaurants can’t or won’t pay up.
Class 8 Heavy Duty Truck Orders Crash 62.5% In May To Lowest Levels Since 2011 — Just as we noted about April’s numbers, the misery in Class 8 heavy duty truck orders continues. Still struggling with the remnants of an order backlog that started almost two years ago with record orders in August 2018, the industry was unable to find an equilibrium prior to the coronavirus pandemic. Orders were sluggish and we noted numerous trucking companies that closed up shop altogether in 2019. After a 73% crash in April, Class 8 orders once again plunged 62.5% in May, to their lowest sales levels since 2011. Sales came in at just over 9,000, according to Transport Topics. Don Ake, vice president of commercial vehicles at FTR, tried to look at the bright side: “It’s not a horrible number. It’s a fair number under bad conditions. It is going to be a long, slow climb back.” “We went into 2020 with very high inventories,” Ake said. YTD sales for Class 8 trucks were 69,379, which is down 37.5% from 2019. Dan Clark, head of BMO Transportation Finance, says a V-shaped recovery isn’t likely: “Given that the industry is still wrestling with the hangover of a near-record two-year stretch of heavy-duty truck sales, which is now compounded by lower than previously expected economic activity for the next year or two, we aren’t expecting to see a V-shaped recovery in Class 8 sales.” Steve Tam of ACT Research took a longer term view: “These trucking companies have to assume I’m here today, I will be here tomorrow and so will my business. A lot of what we are dealing with now is just noise. It’s another cycle in the industry, although a very different cycle, with a very different catalyst. But a cycle nonetheless. So they have to continue to invest in the business if they want it to continue, and, hopefully, grow as well. So they are taking the long view.”
US business inventories down 1.3% in April – Inventories in the manufacturing and trade sectors in the United States decreased by 1.3% in April compared to the previous month to stand at $1.98 trillion, according to a report by the US Census Bureau released on Tuesday. The figure was 2.2% lower on a yearly basis.The combined value of distributive trade sales and manufacturers’ shipments for April, adjusted for seasonal and trading-day differences was estimated at $1.18 trillion, plunging 14.4% from March and 18.4% year-over-year.The ratio between business inventories and sales was 1.67 at the end of April, up from 1.39 recorded in April 2019.
LA area Port Traffic Down Sharply Year-over-year in May – Container traffic gives us an idea about the volume of goods being exported and imported – and usually some hints about the trade report since LA area ports handle about 40% of the nation’s container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was down 1.2% in May compared to the rolling 12 months ending in April. Outbound traffic was down 1.5% compared to the rolling 12 months ending the previous month. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March depending on the timing of the Chinese New Year (January 25th in 2020). Because of the timing of the New Year, we would have expected traffic to decline in February without an impact from COVID-19, but bounce back in March and April. Imports were down 14% YoY in May, and exports were down 17% YoY. In general imports both imports and exports have turned down recently. There might be some bounce back soon.
Industrial Production Increased 1.4 Percent in May – From the Fed: Industrial Production and Capacity Utilization: Total industrial production increased 1.4 percent in May, as many factories resumed at least partial operations following suspensions related to COVID-19. Even so, total industrial production in May was 15.4 percent below its pre-pandemic level in February. Manufacturing output – which fell sharply in March and April – rose 3.8 percent in May; most major industries posted increases, with the largest gain registered by motor vehicles and parts. The indexes for mining and utilities declined 6.8 percent and 2.3 percent, respectively. At 92.6 percent of its 2012 average, the level of total industrial production was 15.3 percent lower in May than it was a year earlier. Capacity utilization for the industrial sector increased 0.8 percentage point to 64.8 percent in May, a rate that is 15.0 percentage points below its long-run (1972 – 2019) average and 1.9 percentage points below its trough during the Great Recession. This graph shows Capacity Utilization. This series is up slightly from the record low set last month, and still below the trough of the Great Recession (the series starts in 1967). Capacity utilization at 64.8% is 15.0% below the average from 1972 to 2017. The second graph shows industrial production since 1967.Industrial production increased in May to 92.6. This is 6.3% above the Great Recession low. The change in industrial production was below consensus expectations.
NY Fed: Manufacturing “Business activity steadied in New York State” in June -Earlier from the NY Fed: Empire State Manufacturing Survey: Business activity steadied in New York State, according to firms responding to the June 2020 Empire State Manufacturing Survey. After breaching record lows in April and May, the headline general business conditions index climbed forty-eight points to -0.2. … The index for number of employees was little changed at -3.5, pointing to a second consecutive month of slight employment declines. Notably, 18 percent of firms said that employment levels increased in June. The average workweek index increased ten points, but remained negative at -12.0, indicating an ongoing decline in hours worked, though at a slower pace than in recent months. This was well above expectations, and showed activity “steadied” (at a low level) in June.
Philly Fed Manufacturing firms reported “signs of improvement” in June –Note: Be careful with diffusion indexes. This shows a rebound off the bottom – some improvement from May to June – but doesn’t show the level of activity. From the Philly Fed: June 2020 Manufacturing Business Outlook Survey Manufacturing conditions in the region showed signs of improvement this month, according to firms responding to the June Manufacturing Business Outlook Survey. The survey’s current indicators for general activity, new orders, and shipments returned to positive territory, coinciding with the gradual reopening of the economy in our region and the nation more broadly. The employment index remained negative but increased for the second consecutive month. All future indicators improved, suggesting that the firms expect overall growth over the next six months. The diffusion index for current general activity increased from -43.1 in May to 27.5 this month, its first positive reading since February (see Chart 1). Forty-six percent of the firms reported increases this month (up from 15 percent last month), while 19 percent reported decreases (down from 58 percent). … The firms continued to report decreases in employment on balance; however, the employment index increased 11 points. This was well above to the consensus forecast. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index: The New York and Philly Fed surveys are averaged together (yellow, through June), and five Fed surveys are averaged (blue, through May) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through May (right axis).These early reports suggest the ISM manufacturing index will show a rebound in June.
Companies vow no more shutdowns for COVID-19 as US auto plants resume full production – US automakers Ford and Fiat Chrysler (FCA) report they will resume full production at all their North American plants on Monday, ahead of their previously announced schedule despite continued concerns over the spread of COVID-19. FCA said the second shift at its Belvidere, Illinois assembly plant, which produces the Jeep Cherokee, is set to return on Monday. It was the last FCA plant to return to pre-pandemic levels of operation. Meanwhile, Ford will return third shifts at assembly plants in Chicago, Dearborn Michigan and Louisville Assembly and Kentucky Truck in Louisville. The plants build SUVs as well as bestselling F-Series pickup trucks. General Motors has confirmed that it will resume full North American production by the end of June. The auto companies are still keeping a tight lid on the number of COVID-19 infections among plant employees even as infections have been reported at plants of all the major automakers. There have been cases at Ford plants in Chicago, Dearborn, and Kansas City, Missouri. There have also been reports of cases at General Motors plants in Arlington, Texas; Wentzville, Missouri; Kansas City, Kansas and Spring Hill, Tennessee as well as Fiat Chrysler plants in Toledo, Ohio and the Detroit area. At least 4 workers have tested positive at electric carmaker Tesla, which operates a giant factory in Fremont, California. Auto factories in the South operated by Japanese and German automakers have seen a rise in cases as the novel coronavirus surges in the area after the premature reopening of local economies. Toyota has reported 40 cases at its US facilities, including its huge Georgetown, Kentucky facility. Volkswagen has reported 12 cases at its Chattanooga, Tennessee plant since restarting production last month as COVID-19-related hospitalizations have surged in the state. Nissan has confirmed three cases at its Canton, Mississippi plant. Mississippi has the second fastest growth of new coronavirus cases of any US state. On Thursday German carmaker BMW reported 14 cases at its plant in Spartanburg, South Carolina. The plant employs 11,000 workers and builds a wide range of SUVs, most of which are exported to overseas markets, including China. The same day that BMW reported the outbreak at its Spartanburg plants South Carolina saw a record number of new COVID-19 cases, 987, and four deaths. The state was one of the first to remove lockdown restrictions.
BLS: May Unemployment rates down in 38 states; 4 States at New Record Highs –From the BLS: Regional and State Employment and Unemployment Summary Unemployment rates were lower in May in 38 states and the District of Columbia, higher in 3 states, and stable in 9 states, the U.S. Bureau of Labor Statistics reported today. All 50 states and the District had jobless rate increases from a year earlier. The national unemployment rate declined by 1.4 percentage points over the month to 13.3 percent but was 9.7 points higher than in May 2019….Nevada had the highest unemployment rate in May, 25.3 percent, followed by Hawaii, 22.6 percent, and Michigan, 21.2 percent. The rates in Delaware (15.8 percent), Florida (14.5 percent), Massachusetts (16.3 percent), and Minnesota (9.9 percent) set new series highs. (All state series begin in 1976.) Nebraska had the lowest unemployment rate, 5.2 percent. This graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 1976. Currently 33 states are above 10% unemployment rate (down from 46 states last month). Ten states are above 15% (down from 20 states last month). Three states are above 20% (Hawaii, Michigan, and Nevada). One state (Nevada) is above 25% unemployment.
Weekly Initial Unemployment Claims decrease to 1,508,000 – The DOL reported: In the week ending June 13, the advance figure for seasonally adjusted initial claims was 1,508,000, a decrease of 58,000 from the previous week’s revised level. The previous week’s level was revised up by 24,000 from 1,542,000 to 1,566,000. The 4-week moving average was 1,773,500, a decrease of 234,500 from the previous week’s revised average. The previous week’s average was revised up by 6,000 from 2,002,000 to 2,008,000. The previous week was revised up.This does not include the 760,526 initial claims for Pandemic Unemployment Assistance (PUA) – this was an increase from the previous week. The following graph shows the 4-week moving average of weekly claims since 1971.
New and continued jobless claims level off, as spreading secondary impacts and job recalls balance – Weekly initial and continuing jobless claims give us the most up-to-date snapshot of the continuing economic impacts of the coronavirus on employment. Three full months after the initial shock, the overall damage remains huge, with recalls to work roughly balanced with spreading new secondary impacts. 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 1.433 million new claims, which after the seasonal adjustment became 1.508 million. This is “only” 58,000 less than last week’s number – the smallest weekly decline since the worst reading in April, but nevertheless is the lowest so far since the virus struck. These new claims show objectively huge second-order impacts continuing to spread. The “less bad” trend has leveled off in continuing claims, which lag one week behind. In the past four 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 only 62,000 to 20.544 million, 4.368 below its peak of 24.912 million four weeks ago; while the latter actually rose slightly by 26,000 to 18.654 million, but still 4.140 million below its peak of 22.794 million reading four weeks ago: In other words, the spreading new damage shown by the continued huge numbers of new jobless claims 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: Since this week the “King of Coincident Indicators,” industrial production was reported to have risen in May, and real retail sales also rebounded strongly, the decline in continuing claims over the past month is consistent with a determination by the NBER that a very short recession has already ended. Because there is increasing evidence of renewed exponential spread by the coronavirus in States that recklessly reopened, all of the improving economic data (improving from absolutely horrible levels of course) may come to an abrupt end in the next few weeks.
US jobless disaster intensifies as 1.5 million filed for unemployment last week – New claims for unemployment insurance continue at historically unprecedented high levels despite the lifting of lockdown orders all across the United States. According to the US Labor Department, there were 1.51 million claims filed for the week ending June 13. Forty-six states reported another 760,526 initial claims for Pandemic Unemployment Assistance (PUA), which has been made available to the self-employed, traditionally ineligible for unemployment aid The number of unemployment claims last week was a drop of just 58,000 from the revised level of the previous week. The four-week average stands at 1.77 million weekly claims, far in excess of the previous record set back in 1982 of 695,000. There have been 45 million new unemployment claims filed since the start of the pandemic. While some of those may represent duplicate filings by workers seeking assistance in more than one program, it is still an astronomical number that indicates deep economic distress across the country. Through the week ending June 6, continuing claims for unemployment benefits stood at 20.5 million, only a slight decrease from the previous week. In addition, there were 9.3 million self-employed and gig-economy workers receiving benefits under the federal PUA program and another 1 million receiving a continuation of benefits under the Pandemic Emergency Unemployment Compensation program. According to the Bureau of Labor Statistics, only about 1 in 10 jobs cut in April were restored in May, and even that number is in dispute, as is the claim that the official unemployment rate declined last month to 13.3 percent. In fact, the real rate stood at 16.3 percent due to an undercounting error. Prior to the pandemic the highest weekly number of those receiving unemployment benefits was 6.6 million, in 2009. The persistence of such shocking numbers despite the reopening of the auto industry and the recall of millions of workers from temporary layoff due to the coronavirus pandemic points to a general collapse of the economy and the start of a deep, perhaps prolonged depression, one to rival the Great Depression of the 1930s. Layoffs have spread well beyond the industries initially impacted by the pandemic, and others have been made permanent. Hilton Worldwide said it is eliminating 2,100 corporate jobs worldwide while AT&T plans to eliminate 3,400 technician and clerical jobs in the US and will permanently close more than 250 stores. In another casualty, the gym chain 24 Hour Fitness filed for bankruptcy and is permanently closing more than 100 locations..
Stocks slide after new claims show high unemployment – Stock markets opened down on Thursday following a worse-than-expected unemployment report.Initial unemployment claims for the second week of June showed over 1.5 million new claims, plus over 750,000 applicants for Pandemic Unemployment Assistance, which makes benefits available to groups that normally cannot receive unemployment insurance. Continuing claims, a better indicator of the overall labor picture, remained at 20.5 million, down just 62,000 from the previous week. Surges of coronavirus cases and hospitalizations in some places that have moved to quickly reopen their economies, such as Texas and Florida, are raising concerns about whether the economy will strongly rebound from earlier lockdowns.
Comments on Weekly Unemployment Claims – McBride – The weekly claims report released this morning was for the June BLS employment report reference week (include the 12th of the month). So it is worth taking a further look at the report.This morning: Weekly Initial Unemployment Claims decrease to 1,508,000 First, regular initial claims were above expectations, and the previous week was revised up.Second, including Pandemic Unemployment Assistance (PUA), total initial claims increased from the previous week.Third, several states have not released PUA claims yet. This includes Florida, Georgia, Oregon and others – so the number of PUA claims is too low. However, there may also be processing delays that are impacting the numbers. Fourth, continued claims only decreased slightly to 20,544,000 (SA) from 20,606,000 (SA) the previous week. However, continued claims are down over 4 million from a month ago, so a large number of people have probably returned to their jobs (Some of these were included in the employment report for May). The following graph shows regular initial unemployment claims (blue) and PUA claims (red) since early February. This is the 13th consecutive week with extraordinarily high initial claims.It is possible that we are starting to see some layoffs associated with the end of some early Payroll Protection Plan (PPP) participants. It is too soon to see layoffs associated with the rising COVID cases and hospitalization in some states (like Arizona and Texas). Note that these states don’t have to lockdown to see a decline in economic activity. As Merrill Lynch economists noted last month: “Most of the slowdown occurred due to voluntary social distancing rather than lockdown policies.”Overall this was a disappointing initial claims report, but it is difficult to tell from this report what is happening to overall employment.
Nearly 24,000 Ohioans told to return unemployment payments– The Ohio Department of Job and Family Services (ODJFS) has demanded that 23,597 Ohio residents, who the ODJFS claims were overpaid, begin paying back unemployment benefits that they received since March 15. The ODJFS request puts many residents in an impossible position as they are required to give back potentially thousands of dollars – which they likely used for food, housing and other necessities – despite being unemployed for potentially months. The ODJFS, which is the state department that oversees unemployment compensation, has sent out notices to individuals that it claims received “overpaid benefits,” specifying that the “overpayment” was not the result of fraud. While receiving “overpaid benefits” is not a crime, the ODJFS specifies on their website that the “debt” must be repaid within 60 days or it will be reported to “the Ohio Attorney General for collection” and federal income tax refunds could be intercepted. Recent notices, however, state that residents only have 45 days to repay the debt before it is reported. The number of individuals that have been “overpaid” in the past has exceeded those accused of fraud, but the cases of alleged “overpayment” surged along with unemployment resulting from the economic impact of the COVID-19 pandemic. The ODJFS reported that in the first quarter of 2020 there were 7,527 cases of non-fraud overpayment and 1,347 cases of alleged fraud. On March 15, Ohio Governor Mike DeWine ordered a statewide lockdown as part of efforts to slow the spread of the novel coronavirus. Between March 15 and May 30, about 1.3 million Ohioans applied for unemployment insurance with roughly half receiving their first payment by May 23. Out of the 680,000 who received benefits, roughly 3.5 percent will now have to repay at least part of their benefits. ODJFS Director Kimberly Hall stated that “lagging data” and large influx of new claims can easily result in errors that lead to overpayment by the state agency. Many workers, however, have expressed that it was a struggle to receive benefits even initially, and that it is financially and emotionally devastating to suddenly discover that they must repay the desperately needed payments. Marnie Behan, a 21-year-old college student and waitress at Buffalo Wild Wings, went on unemployment after the restaurant chain closed due to the pandemic. One day, instead of her unemployment check, she received a notice claiming that she had to pay back $3,000 within 45 days. Describing her response to 19 News, she said, “I started crying. A lot of things were going through my head, I was really upset. I was stressed and frustrated. Because it took six weeks for me to be approved for it in the first place.” She is currently appealing the decision.
Meatpacking workers oppose forced return to work through protests and mass absenteeism –Meat processing workers across the United States have defied the homicidal policy of the Trump administration, company executives and state governments to force workers back into plants that have been epicenters of illness and death from COVID-19. The actions by meatpacking workers coincide with exposure of the criminal role of the companies in refusing to shut down plants or implement critical safety measures once the pandemic began to explode across the US in March. On June 9, meatpacking workers in Logan, Utah, marched with supporters to protest the refusal of JBS to close its beef processing plant in the city of Hyrum after 287 workers tested positive for COVID-19 ten days earlier. The workers demanded that JBS, the largest meat processing company in the US and largest producer of beef and pork globally, immediately close its Hyrum plant for deep cleaning and disinfection to prevent the further surge of COVID-19. Meat processing workers who took part in the protest also demanded that plant employees be adequately compensated during the closure or while quarantined. The 287 COVID-positive cases were reported by the Bear River Health Department after workers at the Hyrum plant were screened for COVID-19 over the weekend of May 30. The actual number of workers who have contracted the virus is likely higher, as some workers have gone to local hospitals for testing instead of through the Bear River Health Department. The initial protest by meatpacking workers at the Hyrum plant on June 9 took place one day before some of the 287 who initially tested positive were ordered to return to work. Cache County, where the Hyrum plant is located, experienced a one-day gain of 42 additional cases on June 8, bringing the total reported COVID-19 cases to 773. The outbreaks in the JBS plant and surrounding area likely amount to the single largest outbreak of the virus in the state of Utah. Another form taken in the opposition of meat processing workers to the forced unsafe return to work has been mass absenteeism, despite attendant economic hardship. Smithfield Foods reported Monday that at least one-third of its workforce in South Dakota refused to leave quarantine when ordered by the company to return to work. . The mass defiance of the return to work order demonstrates that workers have no confidence that either the companies or the government will take even the most basic safety measures to prevent the spread of illness and death. Meanwhile, the Trump administration has ordered a return to work in these deadly conditions while granting immunity to the companies and executives from any liability for the consequences.
Some Thoughts on New York City and the Dim Prospects for American Cities – by Yves Smith – I’ve been wanting to write for some time about the outlook for the economy in the coronavirus era, but the topic is too sprawling to fit into one post. I’ll start with the very much diminished prospects for American cities, based in part on a trip to New York last week. The overarching theme is unless effective treatments and prophylactics go into service on a widespread basis soon (and by “soon” I means three to four months), the damage to productive capacity will be severe and lasting. As we said earlier: The related point … is that Covid-19 will do far deeper damage than most experts anticipate because it is reducing productive capacity on a lasting basis in many sectors: restaurants, hotels, entertainment, air transportation, conferences, and conceivably higher education. What do sous chefs, bartenders, university administrators, and pilots, to name a few, do for their next act? Remember how malls have become white elephants? What happens to Class A office space in big cities now that WeWork is a thing of the past, and white collar employers are seeking to keep as many staffers as possible working remotely? . I wish I could convey adequately how deep and widespread the impact of coronavirus has been on New York. And as someone who has always strongly preferred living in cites and has chosen to live in high density areas, the new normal now means that density is a negative for most workers and residents. Thinning out cities (which is clearly has happened already in Manhattan, witness the mass exodus of the well off and the plan of many employers to keep as many of their staff as possible working from home) is at odds with their raison d’etre: residents accepting more cramped dwellings as a tradeoff for ready and easy access to entertainment, services, and people, along with that mysterious quality of vibrant street life. Cities are about conducting most of your activities on foot and having those peregrinations be interesting. Having so many coffee shops and specialized food vendors and more broad-scale grocery stores die, IMHO, negates much of the rationale for living in a city. If you can’t forage on foot, and you are ordering in, and you aren’t much going to restaurants and bars (or theater and museums), why are you living in a city? Some contend that people live in cities only for careers (and possibly mating) opportunities. But that is belied by the breathless press of the last decade plus about how more people wanted to live in urban settings for the vibrancy and convenience. And in New York City, despite it being child-hostile, when the city got cleaner and safer when it put the fiscal crisis, more and more upper income parents, chose not to follow the conventional path of moving to the ‘burbs before their kids hit school age; more and more, they remained in the city. And the tragic part is that the high odds of what I saw in Manhattan becoming the new normal for US cities is a massive self inflicted wound. Hong Kong and Seoul have gotten Covid-19 infections down to impressively low levels through widespread mask-wearing plus aggressive contact tracing and testing.
Facing anger over budget cuts and early reopening, Detroit school officials promote racial politics -Officials from the Detroit Public Schools Community District (DPSCD) called a march and rally for “Equality and Justice for All” on June 11, which attracted 2,000 teachers, parents and students. While those who attended were sincerely motivated by opposition to police killings, racism and deteriorating public schools, district officials called the event to conceal the role of the Democratic Party in the decades-long assault on public education, which is now being escalated. Like the marches in Detroit and other cities against the police murder of George Floyd the school district rally brought out educators and supporters of all races and ethnic groups. Marchers carried signs like “DPSCD Matters” and “G.E.O.R.G.E.: Give Everyone Opportunity, Respect, Government Equality,” “Prioritize school funding: Books not bullets.” A white schoolteacher carried a sign listing the names of murdered black children and youth, including Emmett Till, Trayvon Martin and Aiyana Stanley-Jones, and asking, “Are my students next?” School officials are well aware that they will confront immense opposition from educators as they rush to reopen the schools in September amid the pandemic, slash jobs and services and divert even more money to school privatizers. The speakers at the rally, including District Superintendent Nikolaii Vitti, blamed the chronic underfunding of the Detroit public schools on “systemic racism.” In fact, the Detroit schools, like others around the state, have been systematically starved of funding by both the Democrats and Republicans. Meanwhile, both corporate controlled parties have handed over billions in tax cuts to the auto companies, Detroit Medical Center, DTE Energy, Comerica Bank and billionaires like Dan Gilbert and the Ilitch family. Vitti, whose salary is $321,000, went out of his way to make it clear that the rally was not about “equality.” He told the crowd, “If we’re going to talk about Black Lives Matter in education, it’s got to be about not equality, it’s about equity. Our kids don’t need the same – our kids need more.”
Slight majority of US parents favor in-person return to school this fall: poll — A slight majority of U.S. parents said they would prefer their children to return to full-time in-person schooling in the fall, according to a new Gallup poll. Fifty-six percent of parents of children who attend a K-12 school said they favor their children returning to school full-time, in-person in the fall, according to the poll released Thursday. The same poll found that 37 percent of parents said they favor their children returning to school part-time with some distance learning in place, and just 7 percent said they favor their children continuing full-time distance learning. Parent’s concern about whether their children may get coronavirus is a major predictor in what type of schooling they prefer, based on the Gallup poll. Seventy-nine percent of parents who favor returning to full-time in-person schooling said they are not worried their children will get coronavirus, based on the poll. Among parents who favor part-time school with some distance learning, 59 percent said they’re worried children will get coronavirus and only 18 percent said they are not worried their children will get coronavirus, based on the poll. Views were also split along party lines. An overwhelming 82 percent of Republican parents said they want their children to attend school full time in the fall, compared with 63 percent of independents and only 33 percent of Democrats who said the same, based on Gallup’s survey. The majority of Democrats, 57 percent, said they favor partial in-person schooling and partial distance learning, according to Gallup’s poll. The majority of parents, 56 percent, also said remote learning was difficult for their household, while 44 percent said it was easy, based on the poll. The poll was based on web surveys conducted May 25-June 8 with a sample of 1,202 parents of U.S. K-12 students who are members of the Gallup Panel. The margin of error is plus or minus 6 percentage points.
How 132 Epidemiologists Are Deciding When to Send Their Children to School – NYT – For many parents, the most pressing question as the nation emerges from pandemic lockdown is when they can send their children to school, camp or child care. We asked more than 500 epidemiologists and infectious disease specialists when they expect to restart 20 activities of daily life, assuming that the coronavirus pandemic and the public health response to it unfold as they expect. On sending children to school, camp or child care, 70 percent said they would do so either right now, later this summer or in the fall – much sooner than most said they would resume other activities that involved big groups of people gathering indoors. Others, though, said they would wait for a vaccine, which could take a year or more. Some expanded on their thoughts. They said they were assessing regional data, like the rate of infection transmission in their area, and the safety measures schools are taking. They’re also considering their own situations, like their family’s health risks, their work demands and their children’s academic, social and emotional lives. Several said school was so important – both for their own careers and for their children’s development – that they were willing to take a risk that they would not for something less valuable.Epidemiologists’ informal motto is “It depends.” They cautioned that they might change their planning depending on these and other variables. Their estimates are not advice, but the range of their responses and the comments below give a sense of how experts are considering this difficult question in their lives.Here are comments from three epidemiologists about how they are considering the issue:
- “Children are relatively safe. I would worry about teachers.” – Lisa Herrinton, Kaiser Permanente
- “I think it would be really stupid to reopen the schools in September, given the present course of things. Really. Stupid.” – Carl V. Phillips, Epiphi Consulting
- “Unlike dining out, there is a far more substantial cost to keeping kids out of school.” – Arijit Nandi, McGill University
And here are comments from 129 more:
Thousands of educators laid off across California as state Democrats plan austerity budget – Yesterday, the California State Legislature voted on a state budget bill under conditions in which the state faces a projected budget deficit of $54.3 billion as a result of the economic fallout from the COVID-19 pandemic. K-12 public education is threatened with existential cuts, with California Governor Gavin Newsom proposing $8 billion in cuts for the coming year. Newsom has until July 1 to approve, alter or veto the austerity budget, though more changes to the state budget are likely to come in late summer as the real numbers from tax revenues arrive on July 15. The legislature’s budget is a counter-proposal to Newsom’s revised budget issued in May, and argues that it can “spare” budget cuts to K-12 schools, primarily by issuing deferrals to districts. If enacted, nearly $10 billion in deferrals for school districts would be passed in order to cover projected expenses, forcing districts to assume vast sums of debt that will be owed back to the state in the near future. As the economic impact of the pandemic continues to deepen, it is evident that the current proposals from both the governor and the legislature vastly underestimate the cuts to education on the horizon. The legislature’s budget proposal is a stunt, one that hinges on the hope that the US Congress will come through with billions of dollars in funding for education through the fraudulent HEROES Act, which would provide some $10 billion in education relief to California. In a joint statement, Senate President pro Tempore Toni G. Atkins (D-San Diego), Assembly Speaker Anthony Rendon (D-Lakewood) and chairs of the state budget committees said there was a “strong likelihood” that Congress would deliver additional federal relief. At a press conference Monday, Newsom said, “I remain confident that something will happen at the federal level to mitigate the impact at the state level.” This is a cynical charade. Newsom and all the Democratic Party officials who have spearheaded decades of austerity in California know very well that the Senate has no intention of passing the HEROES Act, which Trump has explicitly declared “dead on arrival.” While school districts across California face a future of growing austerity, dozens of the state’s K-12 public school districts facing prior budget shortfalls have already carried out budget cuts and issued layoffs to educators and support staff for the coming school year.
Massachusetts educators protest layoffs and sweeping cuts to public education – On Monday, educators from across the state of Massachusetts held a rally in Brookline, a part of the Greater Boston area, to protest the devastating budget cuts and job losses that are mounting statewide. Educators in over 50 school districts across the state have now been given pink slips or reduction-in-force (RIF) notices. The protest took the form of a caravan, with more than 500 vehicles driving from Brookline’s Larz Anderson Park to Brookline High. The budget cuts sweeping across Massachusetts stem from the loss of income and sales tax revenue due to the COVID-19 pandemic and its economic fallout, which is being foisted upon the working class in every state. When the World Socialist Web Site broke the news on the cuts in Randolph, Massachusetts, one of the first districts in the state to face cuts, we warned that they were “a foretaste of what will befall many districts, teachers, and students.” The protest on Monday coincided with the June 15 deadline for most districts to inform their employees of layoffs. Public schools are not obligated to publicize the lists or even numbers of educators they lay off, so in many cases workers and families in each district are still trying to determine the scope of the cuts. A reoccurring theme, though, is the high loss of jobs among the arts, music and physical education (PE) departments, as well as paraprofessionals and librarians. The numbers that are known paint a bleak picture. Many districts claim they plan to invite teachers back, depending on whether or not they receive additional funding from the state or their individual cities. However, there is no guarantee that this funding will be made available, and educators are now left in a state of jobless limbo. In Brockton, 24 teachers received pink slips last week and the district intends to leave 40 teaching vacancies unfilled, with most positions in the arts, PE and music departments. Twenty-one paraprofessional and teaching assistants were also laid off, while another 39 who retired or left their jobs will not be replaced. In Taunton, a district with only 960 full-time employees, 160 pink slips were distributed yesterday, cutting $5.8 million from the district’s budget. Those affected were primarily first- and second-year teachers, as well as 16 library assistants. In Randolph, all K-12 arts, music and PE departments were essentially eliminated at the end of last month, with all teachers for each subject being cut, as well as multiple elementary and middle school social workers and guidance counselors. In Brookline, 362 of the district’s 645 teachers were laid off over the past two weeks. Immense opposition from the community forced the district to rehire more than 300 of these laid-off teachers, but subsequently an unspecified number were again laid off, with district officials claiming they made a “mistake” by sending out rehiring e-mails to some teachers. In addition, roughly 300 paraprofessionals in Brookline face the prospect of joblessness, with their notification deadline extended to June 22, the day before the school year ends.
Over 1.4 million US education jobs slashed in April and May — As a result of statewide school closures during the COVID-19 pandemic, a staggering 779,000 K-12 public school educators lost their jobs throughout the US in the months of April and May. Over the same period, 239,000 public college professors and other employees and 424,000 educators at private K-12 schools and universities were laid off. The combined 1.44 million education-related job losses will in many cases be permanent and will have devastating repercussions for both educators and an entire generation of students. These figures are based on the Bureau of Labor Statistics (BLS) monthly unemployment surveys for April and May, which reported a combined loss of 1.1 million public and private K-12 and higher education jobs in April, and a further 340,000 education jobs lost in May. As dire as these figures are, there are reasons to believe that the BLS is doctoring jobless figures in the interests of the Trump administration, and that the real number of educator layoffs is even higher than reported. In both months, the BLS acknowledged that there were “errors” in collecting data, which caused the agency to underestimate the true rate of unemployment by 5 percent in April and 3 percent in May. The reported decline in unemployment in May was seized upon by Trump to falsely claim that an economic recovery had begun. The astonishing figures on education-related layoffs have largely gone unreported in the mainstream press, with only a handful of articles indicating the massive assault on both public and private education jobs over the past two months. There is no specific breakdown of how the layoffs have affected each section of education workers – including teachers, custodial staff, counselors, cafeteria workers, social workers, nurses, paraprofessionals and others – but the bulk of the layoffs have likely not impacted teachers, whose contracts typically protect their jobs through the end of the school year. In all likelihood, districts significantly cut custodial and cafeteria staff, paraprofessionals and office staff when schools began closing en masse in mid-March due to the pandemic. These sections of school workers, who are paid less than teachers and far less than administrators, typically have less savings and live from paycheck to paycheck. They are generally members of trade unions, primarily the Service Employees International Union (SEIU) and the American Federation of State, County and Municipal Employees (AFSCME), while teachers are members of either the American Federation of Teachers (AFT) or the National Education Association (NEA). Not one of these organizations has lifted a finger to oppose the massive assault on jobs, continuing their decades-long complicity in the attack on public education. Most school districts across the US have deadlines in March to give layoff notices to educators, which is an annual occurrence in many districts. For example, in March, Sacramento City Unified School District officially laid off 11 full-time teachers and 46.5 full-time equivalent classified positions, including bus drivers, clerks, campus monitors, yard duty employees and instructional aides. These cuts had been planned for some time. Since the pandemic, undoubtedly many more layoffs across the district have gone unreported, as they have across the US.
Americans Skip Millions of Loan Payments as Coronavirus Takes Economic Toll – WSJ –Americans have skipped payments on more than 100 million student loans, auto loans and other forms of debt since the coronavirus hit the U.S., the latest sign of the toll the pandemic is taking on people’s finances.The number of accounts that enrolled in deferment, forbearance or some other type of relief since March 1 and remain in such a state rose to 106 million at the end of May, triple the number at the end of April, according to credit-reporting firm TransUnion. TRU -0.07%The largest increase occurred for student loans, with 79 million accounts in deferment or other relief status, up from 18 million a month earlier. Auto loans in some type of deferment doubled to 7.3 million accounts. Personal loans in deferment doubled to 1.3 million accounts.The surge in missed payments suggests that the flood of layoffs related to the coronavirus has left many Americans without the means to keep up with their debts. Many people have used up their stimulus checks, and unemployment benefits in high-cost areas aren’t enough to replace paychecks or to help debt-laden borrowers pay down their bills.In some cases, the government is instructing companies to let borrowers defer their loans. The stimulus package signed into law in March, for example, allowed most borrowers to stop making monthly payments through Sept. 30 on federal student loans. The stimulus package also allowed homeowners hurt by the coronavirus or its economic fallout to ask their mortgage servicers for permission to pause their payments for up to 12 months. If the mortgage is backed by the government, the mortgage servicer is generally supposed to grant the request. In other types of lending, consumers are actively seeking help. Many credit-card, auto-loan and personal-loan lenders continue to allow consumers to skip or pause payments, in hopes of buying time for the economy to recover and for consumers to get back on track with their payments.
A call to revise CDC guidelines for reopening -U.S. hospitals are projected to lose $200 billion in revenue by the end of this month. Hundreds face bankruptcy. At a time when we need hospitals to be functioning at peak performance, CDC and state government guidelines for reopening could jeopardize their ability to do so. According to the guidance, 30 percent of hospital intensive care unit (ICU) beds should be available before communities can safely reopen. This arbitrary figure will needlessly hamper areas that are ready right now – and could drive hospitals out of business – while also opening the floodgates in areas that are not yet prepared to handle the incoming demand. Instead, the CDC should urgently revise its guidelines to be rooted in evidence and advise state governments to defer relevant decisions about the safety of reopening to local health authorities. There is no widely accepted evidence that 70 percent of ICU occupancy will be necessary to handle a future COVID-19 surge. While average occupancy of ICUs was 68 percent before the pandemic, this figure varies substantially in hospitals and cities across America. A 2016 study by Prof. Chan of 15 Northern California Kaiser Permanente hospitals found average ICU occupancy was 80 percent. It is impractical to limit hospitals to 70 percent when they needed more of those beds for patients before COVID-19 struck. These restrictions run a real risk of tipping hospitals into insolvency as many faces an existential crisis. Complex surgeries are the financial lifeline of many hospitals and require a post-operative ICU stay. If they must idle 30 percent of ICU beds before they can restore normal surgical operations, it’s only a matter of time before they run out of money. While it can be comforting to have concrete benchmarks to strive towards, simply capping ICU occupancy at 70 percent fails to capture the nuances of critical care capacity management. The inherent uncertainty of the COVID-19 epidemic means that some days’ demand for ICU beds may be many-fold higher than it is on the “average” day. Patients with critical illness from COVID-19 often require prolonged ICU stays. A new surge that brings only three new ICU patients daily can snowball into 20 patients requiring an ICU bed in under a week.Hospital size matters substantially, too. In a small community hospital with 10 ICU beds, 70 percent occupancy means there are only three beds available in the event of a “second wave”. In contrast, a large academic medical center with 100 ICU beds will be able to react much more efficiently and effectively to a second wave with 30 empty beds for new patients. The new guidelines are ambiguous as to how hospitals or policymakers should define ICU capacity. As the onslaught of COVID-19 patients hit New York City, many hospitals quickly canceled surgeries and created makeshift ICU beds in newly-idle operating rooms and general hospital wards. In doing so, the city’s “ICU capacity” more than doubled. As the number of COVID-19 cases subsides in New York, it is not clear whether and how this “created capacity” – much of which has been returned to its normal function – should be considered.
Nurses outraged over US hospital chain bailouts, layoffs and bloated CEO pay – The 60 wealthiest health care and hospital chains in the United States have compensated their top executives hundreds of millions of dollars while laying off tens of thousands of health care workers throughout the United States in recent weeks according to June 8 article in the New York Times. The richest hospital combines, some of which used their non-profit status to avoid federal tax obligations, have slashed life-saving services at a time of great health care need in the midst of the coronavirus pandemic. The Trump administration, meanwhile, has funneled billions of dollars to the corporations, monies obtained in the CARES Act (Coronavirus Aid, Relief, Economic Security Act) and signed into law March 27. One of these hospitals, the prestigious Cleveland Clinic, received a $199 million federal grant this spring, while last year it sat on $7 billion in cash which generated a $1.2 billion investment return, a tidy sum for having paid an investment firm $28 million to manage its largess. “The bailout of major hospitals completely breaks down this narrative that the hospital CEOs love to promote that ‘we are all in this together,'” a nurse at Cleveland Clinic told the WSWS. “The $199 million they received will never drift down to nurses, nurse assistants, janitors or physical therapists. “While there haven’t been mass layoffs at Cleveland Clinic as there have at other hospitals, we were told recently that we must use a certain amount of our paid time off by the end of the summer. For some this means that vacations that were scheduled in the fall will have to be cancelled. They explained this policy to us in an email that makes it sound like employees have to do their part and give back.” The Times examined regulatory, securities and tax documents from 60 health care corporations that received over $15 billion without so much as having to apply for the monies – funds received with almost no strings attached. The swift disbursement occurred virtually overnight for the most powerful health care corporations and tycoons, apparently because industry lobbyists were directly colluding with the secretary of the Department of Health and Human Services, Alex Azar, II and his deputy Eric Hargan in authoring the formulas to pump funds into the already overflowing coffers of the conglomerates. Seven of the largest health care combines in the US were handed $1.5 billion in bailout funds, while they laid off and furloughed over 30,000 workers. They are Trinity Health, Beaumont Health, and Henry Ford Health in Michigan, SSM Health and Mercy in St. Louis, Missouri, Fairview Health in Minneapolis, Minnesota, and Prisma Health in South Carolina. HCA Healthcare, headquartered in Nashville, Tennessee, saw $7 billion in profits the last two years, with a total wealth of over $36 billion, while the company received approximately $1 billion in CARES funds this late winter. HCA’s CEO Samuel Hazen obtained $26 million in compensation in 2019, and in an effort to deflect public outrage let it be known he was donating the first two months of his annual salary, $237,000, to a fund for compensating stressed company health care workers, or 0.009 percent of his direct pay, stock options and bonuses.
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Chinese Consumers Add Fuel to Factory-Led Economic Recovery – WSJ – China’s factory-led recovery enjoyed an extra boost last month as Chinese consumers stepped up to make big-ticket purchases, pushing up home prices and auto-sales numbers and prompting economists to increase their growth outlook for the world’s second-largest economy. Official Chinese economic data released Monday showed improvement across a variety of indicators, including in its headline jobless rate, raising optimism for the global economy even as recessionary anxieties loom over much of the developed world and as fears of a second wave of infection in China are intensifying. An official gauge of unemployment in Chinese cities showed a slight fall to 5.9% in May, a tick down from April’s 6.0% figure and a further improvement after the national surveyed unemployment rate surged to a record 6.2% in February. Value-added industrial production, a measure of output in manufacturing, mining and utilities, grew 4.4% in May from a year earlier, following a 3.9% year-over-year expansion in April, the National Bureau of Statistics said Monday. Retail sales and fixed-asset investment, though still coming in weaker than the same period a year earlier, continued to show strong signs of improvement. Retail sales slipped 2.8% in May from a year earlier, official data showed, much narrower than April’s 7.5% year-over-year decline. The improved reading was fueled by a 3.5% increase in auto sales from a year earlier, the best month by this metric in more than two years.
Parents speak out against rushed re-opening of schools in Australia – Despite widespread concerns among parents and teachers, and repeated COVID-19 outbreaks in schools, the “national cabinet” formed by the Australian federal, state and territory governments has pushed most students back into face-to-face classes. As is occurring internationally, these governments – Liberal-National and Labor alike – have rushed to reopen schools in order to fully open up the economy for corporate profit, placing the health and lives of teachers, parents and students at risk. The national cabinet claims that social distancing is not necessary in schools and students are “low” risk of infection, despite admitting that reopening schools could result in further coronavirus clusters. Teacher trade unions have backed and welcomed the return to classrooms, saying it will “bring stability” to teachers, principals and education support staff. The complicity of the unions has left parents to express their concerns through social media, establishing Facebook pages and petitions. Under conditions where widespread testing is not being conducted, the governments and unions do not know the level of community infection but that has not prevented them from railroading students and teachers back into classes. Last week in Britain, the Conservative government of Boris Johnson was forced to drop its plans to have all primary children back in school within the next four weeks. The temporary retreat is the result of millions of parents and educators opposing the government, in defiance of the education trade unions. The reopening of schools in the two most populous Australian states, New South Wales (NSW) and Victoria, has already resulted in multiple primary and secondary students testing positive to COVID-19, forcing temporary school closures.
The COVID-19 Pandemic Has Caused A Global Bicycle Shortage – While the rest of the economy was shutting down, bicycle shops across the world were seeing a drastic bump in business as a result of the coronavirus pandemic. Bicycle shops, deemed “essential businesses” in many states, saw demand explode after health-conscious people were locked out of their gyms and others were too fearful to ride mass transit. Bikes at large U.S. retailers like Wal-Mart and Target have been missing from shelves for weeks. Independent shops are also doing “brisk business” and are selling out of bikes, according to AP. In fact, over the last two months, bike sales have seen their biggest spike since the oil crisis of the 1970s. Jay Townley, who analyzes cycling industry trends at Human Powered Solutions, said: “People quite frankly have panicked, and they’re buying bikes like toilet paper.” The trend is being seen worldwide, too. Cities like London, Manila and Rome are all seeing surging bike use and are installing bike lanes to accommodate their respective cities’ interest. In the Philippines, bike shop owners say the demand is “stronger than Christmas” and the government in Italy is boosting sales with financial incentives for bikes as part of their government stimulus. But bikes simply aren’t available in places like the U.S., which relies on China for about 90% of its bikes. Production in China has been largely shut down due to the virus and is only just now resuming. The spike in sales began back in March when the U.S. started to shut down and people were forced to stay at home. Adult leisure bike sales tripled in April and overall U.S. bike sales doubled from the year before. Prior to the pandemic, the industry was projecting lower sales based on poor volume in 2019. Dutch e-bike maker VanMoof is seeing “unlimited demand” since the beginning of the pandemic. Its sales are up 138% in the U.S. and 184% in Britain between February and April. Co-founder Taco Carlier said: “We did have some issues with our supply chain back in January, February when the crisis hit first in Asia. But the issue is now with demand, not supply.”
Italy Once Again on the Eurozone Worry List -Over half of Italian companies reported facing a liquidity shortfall by the end of 2020 and 38% reported “operational and sustainability risks,” according to a survey of 90,000 companies conducted by the Italy’s national statistics institute ISTAT.The national Italian business lobby, Confcommercio, recently estimatedthat 60% of restaurants and other businesses were short on liquidity and 30% had complained about the extra costs of implementing anti-contagion safety measures so they can start serving customers after lockdown.The tourism industry, which accounts for 13% of GDP and has been crucial in keeping Italy’s economy afloat over the past decade, providing jobs for an estimated 4.2 million people, is in post-lockdown limbo. The borders have opened but foreign tourists still remain elusive. And with many local residents in no financial position to go on holiday this year, domestic demand is unlikely to pick up as much of the slack as tourism businesses are desperately hoping.Tourism was one of the few parts of the economy that has been growing in recent years. Last year, for instance, it grew by 2.8% while Italy’s industrial output shrank by 2.4%. In an economy that hasn’t grown for well over 10 years while public debt continues to grow at a frightening rate, its fastest growing sector has just been hit with the mother of all sledgehammers.Italy’s manufacturing industry, which was already struggling before the crisis, is also in trouble. In April, when Italy was in the grip of one of the most severe lockdowns in Europe, ISTAT’s industrial turnover index plunged by 46.9% while the unadjusted industrial new orders index fell by 49.0% with respect to the same month of the previous year. Since then, many businesses have reopened but activity remains low. To weather the lull, many companies need credit. But this is easier said than done in Italy, unless you’re a multi-billion dollar company. Car giant Fiat Chrysler is on the verge of being granted a euro 6.3 billion state-backed loan – more than any other European carmaker. Even Atlantia, the firm that operated and maintained the Morandi Bridge in Genoa that collapsed in 2018, resulting in 43 fatalities, is hoping to hit up the government for a euro 1.7 billion loan.Meanwhile, hundreds of thousands of small businesses continue to wait. In the early days of the crisis the Conti government said that debt guarantees would be made available to unlock up to euro 740 billion in funding for businesses. Yet by May 20, just 301,777 of 607,391 requests for assistance had been granted, according to a report by Italy’s bicameral investigative commission. (An accepted request doesn’t mean a loan has actually been dispensed). For those companies that fall through the cracks of Italy’s emergency loan system, many of which were functioning perfectly well before the coronavirus crisis, the temptation is to go cap in hand to mafia-affiliated loan sharks, who are more than happy to help out. In Calabria the Ndrangheta “initially come in with offers of low interest rates, because their end goal is to take over the business, via usury, and use it to launder their illicit proceeds,” says Public Prosecutor Nicola Gratteri.
European Car Makers’ Latest Pandemic Problem: Glut of Unsold Vehicles – WSJ – After reopening factories and sorting out supply chains, Europe’s car makers are facing a new problem related to the coronavirus pandemic: a glut of unsold cars. New-car sales in the European Union, in its affiliate free-trade association partners and in the U.K. fell 57% in May from a year earlier to 623,812 vehicles, according to data published Wednesday by the European Automobile Manufacturers’ Association. Each of the 27 EU member states reported double-digit-percentage declines in new-car sales, and the U.K. was down 89% from a year earlier. The data marked a small improvement following steeper drops in March and April, but new-car sales across the region remain far below last year’s. Production is still well below precrisis levels, but with such comatose demand even this reduced output is creating a surplus of new cars, producing a bottleneck that is slowing down the industry’s recovery and threatening jobs and profits. European executives say they are concerned that while China’s automotive industry is snapping back and the U.S. sector looks as though it could follow suit, Europe’s recovery might take longer because of oversupply and government incentives designed to boost the small electric-car market. Industry analysts and European car dealers estimate that unsold cars on dealer lots are at least 30% above normal, preventing dealers from ordering new vehicles from manufacturers. Before production can fully recover, dealers will have to sell millions of older vehicles. “Unsold stocks are climbing, and on the other hand vehicles are not leaving the lots,” said Antje Woltermann, managing director of the ZDK industry group, representing Germany’s car dealers and repair shops, adding that unsold inventory in Germany alone was about euro 15 billion ($17 billion).
Julian Assange Just Called. To Talk About the Pandemic’s Effect on Capitalism & Politics! – Yanis Varoufakis. – Julian called me a little earlier on, at 14.22 London time to be precise. From Belmarsh High Security Prison of course. I feel honoured and moved that he should dial my number when he has such few and far between opportunities to place calls. “I want a perspective on world developments out there – I have none in here”, he said. Which, of course, placed a considerable burden on me to articulate thoughts on capitalism’s fate during this pandemic and the repercussions of it all on politics, geopolitics etc. The knowledge that Her Majesty’s Prison authorities would discontinue our discussion at any moment made the task harder. In a feeble attempt to paint a picture for him on as broad a canvass as possible, I shared with Julian my main thought of the last weeks:Never before has the world of money (i.e. the money markets, that include the share markets) been so decoupled from the world of real people, real stuff – from the real economy.We watch in awe as GDP, personal incomes, wages, company revenues, businesses small and large, collapse while the stock market is staying relatively unscathed. The other day, Hertz declared bankruptcy. When a company does this, its share price goes to zero. Not now. In fact, Hertz is about to issue $1 billion worth of new shares. Why would anyone buy shares of an officially bankrupt company? The answer is: Because central banks print mountain ranges of money and give it for almost free to financiers to buy any piece of junk floating around the stock exchange.”Complete zombification of the corporations”, is how I put it to Julian. Julian commented that this proves that governments and central banks can keep corporations afloat even when they sell next to nothing at the marketplace. I agreed. But, I also pointed out a major conundrum that capitalism faces for the first time. It is this: Central bank money printing keeps asset prices very high while the price of ‘stuff’ and wages fall. This disconnect can go on growing. But, when Hertz, British Airways etc. can survive in this manner, they have no reason not to fire half the workforce and to cut the wages of the other half. This creates more deflation/depression in the real economy. Which means that the Central Banks must print more and more to keep asset and share prices high. At some point, the masses out there will rebel and governments will be under pressure to divert some income to them. But this will deflate asset prices. At that point, because these assets are used by corporations as collateral for all the loans they take out to stay afloat, they will lose access to liquidity. A sequence of corporate failures will commence under circumstances of stagnation. “I don’t think capitalism can easily survive, at least not without huge social and geopolitical conflicts, this conundrum”, was my conclusion.
Central Banks Pump More Cash Into Economy to Fight Recession – WSJ – The Bank of England launched another burst of stimulus and the European Central Bank said lenders across the region had tapped its loan program for a record euro 1.3 trillion ($1.5 trillion), signs that central banks’ efforts to fuel a recovery aren’t yet done. Economic activity in Europe is tentatively picking up as governments gradually relax restrictions on work and daily life imposed across the continent to stop the spread of the coronavirus. But hopes for a quick rebound from the deep downturn those policies caused have faded, putting the onus on central banks and treasuries to repair the region’s economies. The U.K. central bank said it increased the target for its bond-buying program to Pound Sterling745 billion ($935 billion), from Pound Sterling645 billion. Officials said that without further stimulus, inflation risked drifting far from the bank’s 2% annual goal. The global economy is forecast to shrink 6% in 2020, according to the Organization for Economic Cooperation and Development – or between 7% and 8% if a second wave of the pandemic occurs before the end of the year. Major central banks have responded with big stimulus packages and suggested there may be more to come if growth disappoints. Federal Reserve officials have signaled they expect to keep short-term interest rates pegged near zero through 2022 and are discussing options including capping bond yields. The Fed already cut interest rates to near zero in March and introduced a range of emergency lending programs to purchase debts of companies, cities and states. The ECB said Thursday that eurozone banks borrowed euro 1.3 trillion from a long-term lending facility that pays them to keep loans flowing. The bank has bet heavily on the program to help businesses and households as they cope with the economic fallout from the pandemic, which has been projected to send the currency union into its deepest recession in decades. The long-term loans are part of the ECB’s double-barreled response to the economic shock from the coronavirus. It also ramped up its bond-buying program earlier this month, putting its crisis response in the same league as the Fed’s. But analysts have questioned whether it will be enough and some expect the ECB to step up the program again as soon as September. The U.K. economy shrank a record 20% in April as a nationwide lockdown shut factories, stores, pubs and restaurants. The U.K. has been one of the worst-hit countries world-wide, with 300,000 confirmed cases of Covid-19 and at least 42,000 deaths, the third-highest toll, after the U.S. and Brazil.
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