with Brent D. Griffiths
It might be hard to imagine how things could get worse. Here’s one way: The massive federal spending to prop up a pandemic-ravaged economy is starting to run out. If Congress doesn’t agree on how to replace it in the weeks ahead, millions of Americans who have lost their livelihoods during the shutdowns will be pushed to the brink.
The escalation of chaos in American cities over the past week already has added a crisis to a crisis on top of a crisis, as the economy reels from a once-in-a-century shock and the U.S. coronavirus death toll climbs to 103,000 and counting.
As more than 40 million people have lined up for jobless benefits over the past 10 weeks, the multitrillion-dollar surge of relief from Washington has helped to limit personal financial pain for low and middle-income earners. But federal policymakers designed that effort on the fly to cover an emergency most thought would have ended by now. The emergency endures, and the safety net is fraying badly as lawmakers divide along partisan lines about how to replace it.
“Policymakers must decide in the coming weeks whether to extend emergency unemployment benefits for more than 25 million Americans. They face growing calls to provide billions of dollars in assistance for states and cities, even as President Trump increasingly feuds with governors and mayors,” Jeff Stein and Erica Werner report this morning. “If lawmakers do not act, about $1 trillion in emergency federal aid used to stabilize the economy will disappear in the next quarter.”
That risks running a damaged economy off of a fiscal cliff “that, if not addressed by lawmakers, could arrest or reverse a rebound, economists say. White House officials and several Republicans have resisted pressure to approve more spending, but they are at odds over how to proceed and the path forward is unclear.”
Failure to act will do untold damage to millions. Consider housing assistance.
Since the crisis began, more than 8 percent of homeowners — 4.7 million households — have signed up for mortgage relief programs, Renae Merle reports. And the ranks of renters not paying their rent on time have doubled. Now, “28 million renters, or 22.5 percent of all U.S. households, are at risk of eviction or foreclosure because of the coronavirus,” Renae writes, citing an estimate from Amherst, a data and analytics real estate firm.
The $2 trillion Cares Act barred evictions from some buildings until July 25, and renters would then get another 30 days’ notice. But seven states, “including Arkansas, Oklahoma and Ohio, never enacted state-level eviction bans, and the majority of moratoriums, including in Colorado, Rhode Island and several other states, are set to expire in a few weeks,” Renae reports.
The patchwork of federal and state rules governing how the relief is applied, which is further complicated by different rules depending on whether properties receive some form of federal backing, means many, if not most renters, won’t know how much longer their housing lifeline runs.
Unemployment benefits are also running out.
The Cares Act has been supplying more than 25 million jobless workers with $600 per week each. That extra cushion expires at the end of July. Between March and April, the payments “offset half of the decline in aggregate wages while pumping $15 billion a week into the economy overall,” Erica and Jeff report, citing Ernie Tedeschi, an Obama administration economist. Tedeschi likened allowing that benefit’s sunset to delivering “a 50 to 75 percent pay cut overnight to a huge chunk of the American population.”
The Trump administration and Senate Republicans oppose extending the payments, arguing they disincentivize workers from heading back to their jobs. Some Republicans however have opened the door to offering employees a bonus when they return to work.
Likewise, low and middle income earners will run out of support from $1,200 relief checks.
Economists credit the benefit with providing key support to some 140 million households. “The checks’ biggest lift to the economy came within the first two weeks after their disbursal, according to a recent study by the Federal Reserve Bank of Chicago,” per Erica and Jeff. “About 60 percent of the money still has not been spent, according to a study by a group of economists, as Americans save in unprecedented levels due to the uncertainty caused by the pandemic.” So those with leftover stimulus cash likely won’t rush to spend it, depriving the economy of the boost provided by the initial burst of the checks.
More of the cash doesn’t appear to be a top priority for lawmakers. House Democrats included another round of direct payments in the $3 trillion package they approved last month. But Republicans oppose the move, as do some Senate Democrats.
Policy hands of most stripes agree Congress needs to do more.
“Senate Majority Leader Mitch McConnell (R-Ky.) said Friday that lawmakers would wait about a month before making a decision on going forward with a broader relief package,” though he intends to move quickly to approve a House-passed measure giving small businesses more flexibility with forgivable loans, Erica and Jeff write.
Another round of relief needs to be approved by July Fourth, Neil Bradley, executive vice president of the U.S. Chamber of Commerce, tells me. “This is not something we have to pass in three days, but it’s not something that can wait three months either,” he says. Bradley calls for extending both the employee retention tax credit for businesses and unemployment benefits in some form for workers.
Likewise, Josh Bivens, director of research at the left-leaning Economic Policy Institute, tells me some Americans will start heading over the fiscal cliff now, and “by the end of July, anyone who relied on [federal support] will find it gone … It’s under appreciated how reliant tens and tens of millions of people are on very short-term measures that are set to run out. There are going to be a lot of miserable people if this isn’t addressed. I can’t predict the politics of that outcome. ”
Retailers and restaurants close their doors.
The closures after the pandemic already forced cut backs: “Retailers and other businesses in cities across the country, including the Bay Area, the District of Columbia, New York, Atlanta, Philadelphia and Minneapolis, experienced broken windows, thefts and other violence over the weekend,” Rachel Lerman and Todd C. Frankel report.
“Walmart on Sunday closed several hundred stores because of potential protests. Amazon said it had adjusted routes or scaled back delivery operations in some cities, while Apple closed an unspecified number of stores on Sunday. Target said it temporarily closed six stores in California, Minnesota, Illinois and Pennsylvania. The mayor of Philadelphia ordered all retailers to shut down Sunday.”
- Key quote: “In normal times, businesses would probably take it in their stride,” Neil Saunders, a retail analyst at GlobalData Retail, told my colleagues. “But coming off the back of the pandemic, it’s devastating.”
Facebook employees bash Zuckerberg’s response to Trump: “As protests swept the nation over the weekend, several Facebook employees and executives took the unusual step of chastising chief executive Mark Zuckerberg for his hands-off approach to [Trump’s] post about the demonstrators — and did so on rival site Twitter,” Rachel Siegel and Elizabeth Dwoskin report.
“Many of the social network’s 45,000 employees are left-leaning and have criticized senior executives for cozying up to conservatives in the past. Staff members were particularly upset by news reports that Zuckerberg spoke with the president and told him that the wording of the post put Facebook in a difficult position. Trump toned down his language in a subsequent tweet that was reposted on Facebook. The platform then cited the change as a reason not to remove the post.”
Merck CEO Kenneth Frazier says George Floyd “could be me”: “What the African American community sees in that videotape is that this African American man, who could be me or any other African American man, is being treated as less than human,” Frazier said in a CNBC “Squawk Box” interview.
BET founder Robert Johnson calls for $14 trillion of reparations for slavery: “Calling reparations the ‘affirmative action program of all time,’ Johnson told CNBC they would send the signal that white Americans acknowledge ‘damages that are owed’ for the unequal playing field created by slavery and the decades since with a ‘wealth transfer to white Americans away from African Americans,’” CNBC’s Matthew J. Belvedere reports.
- Pandemic will cost U.S. economy $8 trillion through 2030, CBO says. “That amounts to a 3 percent decline in U.S. gross domestic product compared to its initial estimate,” Jeff Stein reports. “The pandemic will hamper U.S. economic growth by reducing the amount of consumer spending and closing numerous businesses, the CBO said.”
- Eli Lilly begins testing drug derived from coronavirus survivor’s blood: “The Indianapolis company said the testing aims to assess the drug’s potential to treat patients hospitalized with the coronavirus. The drugmaker also plans eventually to test whether the antibody-based drug could prevent disease in people at risk of infection, an approach that could serve as a bridge toward curbing the pandemic until a successful vaccine is developed,” WSJ’s Peter Loftus reports.
- Gilead falls as drug shows less promising benefit in large trial: “Remdesivir showed only a limited benefit in a large trial of more moderate patients with covid-19, a result that may shift perceptions of the therapy already cleared for use in severe cases of the disease,” Robert Langreth of Bloomberg News reports.
- Congress to unveil bipartisan bill to regulate contact-tracing apps: “The proposal, called the ‘Exposure Notification Privacy Act,’ would erect federal guardrails around Silicon Valley’s nascent efforts to track people’s movements and alert them whenever they come in close contact with someone who has tested positive for covid-19. Democrats and Republicans led by Sen. Maria Cantwell (D-Wash.) say the legislation is necessary to ensure tracking isn’t forced on those who don’t want it — and to ensure any data that’s collected isn’t put to commercial use,” Tony Romm reports.
- Lufthansa supervisory board rubber stamps $10 billion bailout: “The approval marks the latest step in the complex state rescue of Lufthansa, which has been badly hit by the pandemic’s impact on the travel sector. Under the plans, the German government will take a 20 percent stake in the airline, which could rise to 25 percent plus one share in the event of a takeover attempt, as well as two seats on its supervisory board,” Christoph Steitz of Reuters reports.
When superpowers collide
Trump is stuck with his U.S.-China trade deal for now.
Wall Street has been worried the deal will be ripped up: “Trump has little choice but to stick with his Phase 1 China trade deal for now despite his anger at Beijing over the pandemic, new Hong Kong security rules, and dwindling hopes China can meet U.S. goods purchase targets … ” David Lawder of Reuters reports.
“In response to Trump’s Hong Kong announcement, China told state-owned firms to suspend large-scale farm purchases including soybeans and pork. … Such a halt will put China further behind in making good on its pledges to boost U.S. purchases by $200 billion over two years. But canceling the deal would reignite the nearly two-year U.S.-China trade war at a time U.S. unemployment is at its worst since the 1930s Great Depression.”
China’s recovery appears to be stalling already: “More and more Chinese factories have reopened for work in the past three months as authorities have eased their once-aggressive coronavirus measures. But now they are facing the dire reality of falling orders from overseas customers,” WSJ’s Jonathan Cheng reports.
“The conundrum can be seen in official and private gauges of China’s factory activity. China’s official manufacturing purchasing managers index and a closely watched private survey, the Caixin China manufacturing purchasing managers index, both showed factory activity expanding in May.”
Manufacturing activity begins slow recovery after hitting 11-year low.
This is the strongest sign yet that a recovery is starting: “The promising signs of stabilization in manufacturing reported by the Institute for Supply Management on Monday are a welcome respite as the country braces for data on Friday expected to show the worst unemployment rate since World War Two. Rampant joblessness will lead to tepid demand and economic growth,” Lucia Mutikani of Reuters reports.
“The ISM said its index of national factory activity rose to a reading of 43.1 last month from 41.5 in April, which was the lowest level since April 2009. A reading below 50 indicates contraction in manufacturing, which accounts for 11% of the U.S. economy. May marked the third straight monthly contraction. Still, the first increase in the ISM index since January mirrored improvements in regional manufacturing surveys in May and suggested April was the nadir for economic activity. A survey on Monday from data firm IHS Markit also showed stabilization in manufacturing conditions in May.”
Supreme Court rebuffs investors’ bid to block Madoff victims: “The U.S. Supreme Court … refused to hear a bid by major banks and companies including Koch Industries Inc to prevent a trustee chasing money for victims of imprisoned Ponzi scheme swindler Bernard Madoff from recouping funds that were transferred overseas,” Andrew Chung of Reuters reports.
“The justices left in place a lower court’s ruling that revived dozens of lawsuits filed by Irving Picard, the trustee liquidating Madoff’s firm, aimed at recovering the foreign transfers. The defendants in the litigation had said the ruling improperly extended the reach of U.S. bankruptcy law beyond the country’s borders.”
Investors don’t appear overly worried by the chaos in American streets.
Stocks rallied on Monday: “Banks, companies that depend on consumer spending and communications companies accounted for a big slice of the modest gains. Health care was the only sector to fall. Bond yields were mostly higher,” the Associated Press reports. “The S&P 500 rose 11.42 points, or 0.4%, to 3,055.73. The Dow Jones Industrial Average gained 91.91 points, or 0.4%, to 25,475.02. The Nasdaq composite climbed 62.18 points, or 0.7%, to 9,552.05.”
Stock analysts at banks are getting more bullish. JPMorgan Chase & Co. sees “potential for billions to flow into equities at the expense of bonds to rebalance portfolios,” Bloomberg’s Justina Lee reports. “Money-market funds have lured $1.2 trillion this year, while fund managers with $591 billion overall are holding cash at levels rarely seen in history, according to Bank of America Corp.”
Meanwhile, Goldman Sachs “effectively bowed to pressure from the continuing rally in U.S. stocks and abandoned its call for another steep sell-off,” Bloomberg’s Joanna Ossinger reports. “Strategists led by David Kostin have rolled back their prediction that the S&P 500 would slump to the 2,400 level — over 20% below Friday’s 3,044 close — and now see downside risks capped at 2,750.”
And here’s some of the thinking from the team at Morgan Stanley, via CNBC’s Carl Quintanilla:
MORGAN STANLEY: Dividends tend to be “more resilient than earnings during recessions .. Therefore, stocks tend to be more resilient than perhaps many investors might think and this is just another reason why the rally has been so sharp and persistent. (Wilson) pic.twitter.com/uUtwqhK8M3
— Carl Quintanilla (@carlquintanilla) June 1, 2020
Individual investors get burned by complex securities: “The pandemic-fueled economic downturn has sparked turmoil in nearly every financial market. It has taken a particularly brutal toll on investors … who wagered on the roughly $7 trillion market for structured products: complex instruments that include ETNs, options-based strategies and certificates of deposits whose returns are tied to stocks or currencies,” WSJ’s Akane Otani and Sebastian Pellejero reports.
Wall Street and Fed fly blind as virus upends bank stress tests.
No one knows what to expect: “U.S. financial regulators, banks and their investors will get their first glimpse into the health of the nation’s banking system as it confronts soaring corporate and consumer defaults in the economic crisis sparked by the coronavirus,” Pete Schroeder of Reuters reports.
“And no-one, including the U.S. Federal Reserve which sets the annual bank ‘stress test’ exams, has a clue what to expect. That could mean banks may be on the hook for billions more in capital than they had anticipated, which could ultimately force them to slash dividends, slim down their balance sheets or reduce lending.”
- Zoom Video Communications, Dick’s Sporting Goods, Cracker Barrel Old Country Store and Lands’ End are among the notable companies reporting their earnings, per Kiplinger.
- Govs. Gretchen Whitmer (Mich.), Jared Polis (Colo.) and Asa Hutchinson (Ark.) testify in front of the House Energy and Commerce Subcommittee on Oversight.
- Acting OMB director Russell Vought testifies in front of the Senate Homeland Security Committee during his confirmation hearing to become permanent director of the Office of Management and Budget.
- The Senate Banking Committee holds a hearing on Title IV of the Cares Act, a.k.a. the Treasury’s $500 billion funding pool.
- The Senate Small Business Committee holds a hearing on the coronavirus’s impact on small businesses.
- Campbell Soup, Cinemark Holdings, American Eagle Outfitters and Vera Bradley are among the notable companies reporting their earnings.
From The Post’s Tom Toles:
From The Onion:
— The Onion (@TheOnion) June 1, 2020