March 21, 2020
U.S. economy deteriorating faster than anticipated as 80 million Americans forced to stay at home
Mar 21. 2020
The U.S. economy is deteriorating more quickly than was expected just days ago, as extraordinary measures designed to curb the coronavirus keep 84 million Americans penned in their homes and cause the near-total shutdown of most businesses.
In a single 24-hour period, the governors of three of the largest states – California, New York and Illinois – ordered residents to stay home, except to buy food and medicine, while the governor of Pennsylvania ordered the closure of nonessential businesses. Across the globe, health officials are struggling to cope with the growing number of patients, with the World Health Organization noting that while it required three months to reach 100,000 cases, it took only 12 days to hit another 100,000.
The resulting economic meltdown, which is sending several million workers streaming into the unemployment line, is outpacing the federal government’s efforts to respond. As the Senate on Friday raced to complete work on a financial rescue package, the White House and key lawmakers were dramatically expanding its scope, pushing the legislation far beyond the original $1 trillion price tag.
With each day, an unprecedented stoppage gathers force, as restaurants, movie theaters, sports arenas, and offices close to shield themselves from the disease. Already, it’s clear that the initial economic decline will be sharper and more painful than during the 2008 financial crisis.
Next week, roughly 3 million Americans will file first-time claims for unemployment assistance, more than four times the record high set in the depths of the 1982 recession, according to Bank of America Merrill Lynch. That’s just the start of a surge that could send the jobless rate spiking to 20 percent from today’s 3.5 percent, a JPMorgan Chase economist told clients on a conference call Friday.
Estimates of the pandemic’s overall cost are staggering. Bridgewater Associates, a prominent hedge fund manager, says the economy will shrink over the next three months at an annual rate of 30 percent. Goldman Sachs pegs the drop at 24 percent. JPMorgan Chase says 14 percent.
“We are looking at something quite grave,” said economist Janet Yellen, the former Federal Reserve chair. “If businesses suffer such serious losses and are forced to fire workers and have their firms go into bankruptcy, it may not be easy to pull out of that.”
Little more than seven months before the presidential election, President Donald Trump already is looking past the crisis and promising a swift recovery. “We’re going to be a rocket ship as soon as this thing gets solved . . . We think it’s going to come back really fast.” the president said Thursday.
Most economists expect the economy to begin climbing out of its deep hole in the second half of this year. But those forecasts depend upon the pandemic being brought under control and the U.S. and other governments enacting policies that prevent lasting harm to factories and financial arteries. Even if all that happens, the economy will be smaller at the end of this year than it was at the beginning, according to Bridgewater, Goldman and JPMorgan.
The truth is no one really knows what will happen months from now. No one on Wall Street or in Washington has any experience dealing with the kind of complex threat that has suddenly materialized to upend American life: a global health scare that is strangling the economy and disrupting financial markets.
Individual workers and their families – many only recently recovered from the 2008-09 economic cataclysm – are already feeling the effects. The unexpected economic shock found millions of Americans living on the precipice of ruin. In a Federal Reserve survey last year, 39 percent of Americans said they would be unable to handle an unexpected $400 expense.
Lyndsy Hartmann knew something was wrong last weekend when she went to her job at a spa company in Charlottesville, Virginia. Hartmann, 34, normally handles 150 calls a day from people interested in booking spa treatments and massages. But on Saturday and Sunday, she received a total of six.
Her boss laid off most of the staff Monday morning. Tuesday, it was Hartmann’s turn.
Her husband, who works as a personal chef, also has lost his job. He had a side gig driving for Uber, but the college kids who were his main customers disappeared earlier this month when the virus forced the University of Virginia to close. Now, the couple is worried about paying their $1,300 apartment rent.
“I don’t have savings. My rent is so high that I live paycheck to paycheck,” Hartmann said. “Everyone is talking about how the coronavirus is affecting restaurants, but it’s affecting hotels, spas and hospitality in general. I don’t know how I’m going to pay rent and pay my bills.”
The situation is much the same in Mount Clemens, a suburb of Detroit. Steve Manzo is a cook and bartender at a popular Irish pub who began the week anticipating double pay for St. Patrick’s Day. Instead, he lost his job Monday and spent hours on the state’s unemployment website trying to apply for government aid that will make up less than half of his typical $60,000 annual salary.
Like many, Manzo lives paycheck to paycheck and is worried he might not even have a restaurant to return to if the pandemic endures.
“I keep looking out my window and everything looks normal, but it doesn’t feel normal,” said Steve Manzo. “I live downtown with bars and restaurants and nobody is here.”
Even Yellen, 73, the former Fed chair, has not escaped the anxiety. She’s hunkered down in her District of Columbia home running economic forecasts that all look grim. Her son, who flew home from London on Saturday and was caught in the mass of people at passport control at Dulles Airport, is self-quarantining in the family’s basement to avoid endangering his mother. Yellen, one of the world’s top economists, leaves plates of food for him at the top of the basement stairs.
Senate consideration of a financial rescue of $1 trillion-plus came amid mounting signs of economic distress. In a joint letter, United Airlines CEO Oscar Munoz and union officials warned of imminent layoffs and urged the airline’s nearly 100,000 employees to lobby Congress for help.
“While many in Washington, D.C. now realize the gravity of this situation, time is running out,” the letter said. ” . . . To be specific, if Congress doesn’t act on sufficient government support by the end of March, our company will begin to take the necessary steps to reduce our payroll in line with the 60% schedule reduction we announced for April. May’s schedule is likely to be cut even further.”
Lawmakers’ willingness to countenance massive spending and corporate bailouts in response was one sign that Americans increasingly recognize the battle against the coronavirus involves a stark choice between health and wealth.
U.S. officials are deliberately engineering a sharp recession to blunt the spread of a fatal disease for which there is no cure, definitive treatment or vaccine. Governors in Florida, New Jersey and Nevada on Friday all took, or indicated they’d take, significant action to limit activity outside the home.
The only way to interrupt the viral blitzkrieg is to implement “social distancing.” But keeping friends and co-workers apart is a recipe for crippling the consumer spending that drives 70 percent of the $21 trillion economy.
Alexis Walker, 40, earned about $60,000 last year with a patchwork series of jobs: working part-time job at an after school program in Philadelphia, which ended a week ago; substitute teaching; working as a nanny; DJ’ing at parties; selling homemade special shea butter; and occasionally renting her apartment on Airbnb.
Last weekend, Walker had $500 worth of babysitting and DJ gigs lined up, but all her customers canceled, along with her entire lineup of Airbnb guests this spring. Her landlord is letting her delay her rent payment, but she knows it will eventually come due.
“Those bills still have to be paid. My debts keep accruing,” said Walker, who hopes to establish a virtual after-school program to keep some money coming in. “What will send this country into a depression is all the bills people will have to pay in two months.”
Dean Baker, senior economist at the Center for Economic and Policy Research, said a depression would involve a more protracted period of unusually low activity than what seems likely.
“Everything depends on how long we are effectively locked down,” said “If it’s just 2-3 weeks, then it need not be this bad. But if we locked down for most of the quarter, then we are looking at a really bad story.”
The sudden turnaround in U.S. economic fortunes is without historic parallel. As 2020 began, the U.S. had been growing without interruption since the middle of 2009. The jobless rate was near a half-century low and the stock market was headed toward a record high.
Now, the economy is screeching to a halt and the stock market is in free fall. On Thursday, the Big3 automakers said they would close their factories through March 30. Real estate agents have canceled open houses. And Marriott, the largest hotel company in the world, is closing its hotels and furloughing thousands of workers.
In a video message to employees, CEO Arne Sorenson said he would not take any salary for the rest of the year. The pandemic “is like nothing we’ve never seen before,” he said.
The sudden loss of hotel business exceeded the combined effects of the Great Recession and the aftermath of the September 11, 2001 terrorist attacks. On average, hotel revenue is down 75 percent, which requires draconian retrenchment.
“I can tell you that I have never had a more difficult moment than this one,” said an emotional Sorenson. “There is simply nothing worse than telling highly valued associates, people who are the very heart of this company that their roles are being impacted by events completely out of their control.”
On Wall Street, the bloodletting continued almost without interruption. After a brief respite on Thursday, stocks sank again on Friday. The Dow Jones industrial average closed at 19,173.98, down more than 913 points or 4.6 percent. Since reaching an all-time high on Feb. 12, the Dow lost 35 percent of its value.
“Get out, get out while you can before they shutter the whole darn United States. A stunning reversal of fortune for the best economy in history to the worst economy in history in not even two months. The fastest recession in history. With no one spending a dime, it will stay that way a long, long time,” Chris Rupkey, chief financial economist for MUFG.
For small business owners, there is palpable fear of bankruptcy.
Bryan DeHenau already has filed for bankruptcy once before, when the construction industry crashed amid the Great Recession. In the years since then, he’s built up a roofing business in hopes of developing a more recession-proof income stream.
Six weeks ago, he said, he had work “coming out the ying-yang.” Now business is down 50 percent and he worries about obtaining enough roof shingles for his remaining customers or dealing with a potential lockdown if Michigan follows the lead of other states.
“We’re just trying to manage day-to-day. It’s all you can do,” DeHenau said. “But if everybody is laid off, they aren’t going to be buying a roof.” –
U.S. markets wrap up worst week since the 2008 financial crisis
Mar 21. 2020
U.S. markets wrapped up one of their messiest-ever weeks Friday, tumbling more than 10 percent from where they began Monday for their worst finish since the 2008 financial crisis. Stocks were wrenched all week in hourly spasms as investors tried to fathom where the coronavirus will eventually leave the U.S. economy.
The craziness ran right up to the closing bell, with the Standard & Poor’s 500 and the Dow Jones industrial average plunging more than 3 percent minutes after the World Health Organization warned that global health systems were “collapsing” under the strain of the pandemic.
Wall Street’s meltdown over the past month has erased all of the stock market gains since Donald Trump entered the White House. On Feb. 12, the Dow peaked at 29,551.42 – a 49 percent jump from its close on Trump’s Inauguration Day in January 2017. But within a span of weeks it has lost a third of its value as the coronavirus crisis has played out. On Friday, it lost an additional 913.21 points, roughly 4.6 percent, to close at 19,173.98.
The S&P finished at 2,304.92, down 4.3 percent, while the tech-heavy Nasdaq composite slid 3.8 percent to close at 6,879.52.
Investors remain in the same fog they have inhabited since markets began their swift drop in February, after the S&P 500 and Dow hit all-time highs. All three indexes are now in a bear-market decline of at least 20 percent from their highs. The Dow and S&P have erased more than 30 percent in a month.
“We had years of low volatility and rising markets, and this virus crisis made it all come to an end at once,” said Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research. “There is no endpoint in sight, and that’s causing a degree of panic because people are saying, ‘I just need to hold some cash.’ There will be more turmoil, but we flushed out a lot of the people who were leveraged. A lot of good things are happening to restore liquidity and order to markets.”
Markets lurched all week, but nothing signified the chaos like oil prices, which dropped below $20 a barrel for part of the day Friday – a mark not seen in years. Oil prices are so low that the industry may go through a generational restructuring. Prices need to be at least in the $50-a-barrel range for companies and producing states to make a profit.
Oil prices saw their worst and best percentage changes in back-to-back days Wednesday and Thursday as a Saudi-Russian feud resets markets. The federal government said it might jump in, ordering millions of barrels of oil purchases for the nation’s Strategic Petroleum Reserve to help soak up excess supply and protect prices.
Governments and central banks have unleashed a torrent of measures to relieve the economic stranglehold of the coronavirus. But those moves have yet to calm investors and institutions that have been unloading assets from stocks to bonds to gold to meet cash obligations.
“People feel like a battered boxer, unsure of how to respond to a flurry of economic punches,” said Sam Stovall of CFRA Research. “The good news out of this bad news is the volatility looks like it is coming to a crescendo. Only two other periods in the past half-century have seen a high level of volatility. History tells us the worst may be behind us.”
The Federal Reserve rolled out eight emergency actions this week, establishing a special backstop for money-market mutual funds (typically a risk-free place for investors to store cash), slashing interest rates to zero and restarting the crisis-era bond-buying program known as “quantitative easing.”
The central bank also announced plans to buy short-term business loans known as commercial paper, ramped up “swap lines” with foreign central banks to ensure other nations have enough dollars, allowed banks to borrow money from the Fed at a 0.25 percent interest rate and announced loans for primary dealers of U.S. Treasury bonds.
Treasury Secretary Steven Mnuchin announced Friday that the administration had moved back the Internal Revenue Service tax-filing deadline from April 15 to July 15 because of the widespread disruption caused by the outbreak. Mnuchin made the announcement on Twitter, citing President Trump’s directive.
Signs of progress in the war against covid-19 stoked some positive feelings on Wall Street. The U.S. dollar, which had skyrocketed as worried investors rushed to secure greenbacks, weakened against other currencies.
Investors also seemed to embrace the increasingly stringent measures being used to combat the spread of the virus. California on Thursday night ordered its 40 million residents to mostly stay at home, and Illinois on Friday announced a similar order. As of Friday afternoon, nearly 260,000 coronavirus cases had been confirmed around the globe. The World Health Organization noted that it took more than three months to reach 100,000 cases worldwide – but only 12 days to log the next 100,000.
“These massive shutdowns in California, New York and elsewhere are going to take a toll,” said Ivan Feinseth of Tigress Financial Partners. “But stocks will come back. I believe in the human spirit and resiliency of people and of markets.”
Senate struggles to finalize trillion-dollar stimulus bill as economic calamity grows
Mar 21. 2020
WASHINGTON – The Senate worked to reach agreement late Friday on a trillion-dollar stimulus bill to save the economy from collapsing under the ravages of the coronavirus, but bipartisan agreement proved elusive as lawmakers debated how best to allocate enormous sums of money to help individual Americans and businesses large and small.
Early in the day, Majority Leader Mitch McConnell, R-Ky., said it was imperative to a reach a deal by Friday night on the legislation to be able to pass it on Monday. By Friday evening, though, major issues remained unresolved, including a push by Democrats to add many tens of billions of dollars to unemployment insurance programs to catch the tidal wave of people bracing for layoffs.
A related issue — how to structure direct payments to individuals and how much to spend on them — was also unresolved, as were numerous other matters, making it likely that talks would stretch into Saturday.
Nonetheless, participants voiced optimism about the progress made on the legislation, which was introduced only Thursday. The process, McConnell has remarked, amounts to “warp speed” for the Senate.
“I’m not optimistic, but I’m not pessimistic at this point. Conversation is positive on a lot of good fronts,” said Sen. Richard Durbin of Illinois, the No. 2 Senate Democrat. “There’s still some things that need to be worked out that could be deal breakers, so it isn’t over.”
Leaving a meeting of key Republicans, White House legislative affairs director Eric Ueland acknowledged that some sticking points are likely to require negotiating throughout the weekend, but he said Senate lawyers would formally draft agreed-upon portions of the bill late Friday and throughout the weekend so that whenever the final pieces come together, a vote can be held quickly.
“I don’t want to be negative about where we are, because, again, we made a significant amount of progress but the clock is ticking and the need for legislation in order to deliver urgently needed aid to the American people and the American economy leaves us no time to hesitate or pause,” Ueland told reporters. The legislation’s final pricetag appeared sure to far eclipse $1 trillion.
As talks intensified, lawmakers and President Donald Trump’s team kept pushing to make the package bigger and more aggressive in its scope. They were also working to scrap limits in the initial GOP bill that would have directed smaller cash payments to lower-income Americans than to others, amid blowback from the White House, Democrats, and Republicans.
As initially written, the plan would have given many Americans $1,200 in a one-time payment, but the poorest families – those without federal tax liability – could get as little as $600. That structure has drawn bipartisan criticism, and senators appeared all but certain to change it to ensure poorer Americans didn’t receive less money. And Trump said the initial payment amount would likely be substantially higher than $1,000.
“We’re not talking about a thousand dollar check. We’re talking about much more than that,” Trump said Friday. “We’re also talking about doing phases. If this doesn’t work, we’re going to keep doing until we get it going.”
Trump also voiced support for barring any corporations that receive aid from being able to do stock buy-backs, or use money to repurchase their stock in order to drive their equity prices higher, enriching shareholders. That issue is not addressed in the bill as initially written, but Trump said he discussed it with Schumer.
“We talked about as an example, buybacks, stock buybacks. I don’t want to have stock buybacks,” Trump said. “I want that money to be used for the workers and also for the company to keep the company going, but not for buybacks.”
McConnell and Treasury Secretary Steven Mnuchin hope to see the legislation pass the Senate on Monday, but it remained unclear whether the negotiators could meet the deadline for such a massive bill, which could be the largest economic rescue in history.
The frantic negotiations are taking place as the economic problems in the United States are multiplying. JPMorgan Chase has estimated that the U.S. economy could shrink by 14 percent between April and June, the biggest contraction in the post-World War II era. Goldman Sachs has estimated that 2.25 million people filed for unemployment this week, a nearly tenfold increase from one week ago and the largest number ever recorded.
Underscoring the urgency of the situation as the administration searches for every possible tool to respond, Mnuchin announced Friday that the nation’s tax filing deadline would be pushed back from April 15 to July 15.
Democrats, whose votes will be needed to pass the stimulus legislation in the House and Senate, panned the bill as unveiled by McConnell on Thursday as overly weighted toward industry. But Schumer and House Speaker Nancy Pelosi, D-Calif., were engaged in talks throughout the day Friday, although Pelosi is at home in California with the House out of session. House members would have to be called back to vote on the bill, a complication unto itself given the spread of the virus with two House members already announcing they’ve tested positive.
Schumer and Democrats were pushing for expanding unemployment benefits in order to provide six weeks of pay with 100 percent wage substitution, and waive existing delays in securing payments, among other changes to make the program more generous. A different coronavirus relief bill signed into law earlier this week already boosted unemployment insurance programs, but Democrats insist they most be expanded as layoffs cascade throughout the economy, rather than just provide individuals with a one-off check as envisioned by the Senate GOP bill as originally introduced.
Some Republicans were voicing concerns about the ability of states to administer large-scale increases in the program, and Labor Secretary Eugene Scalia joined the negotiations Friday to issue a warning on that front. Economists expect a staggering increase in unemployment claims in coming weeks that could potentially shatter records.
“That is our bottom line. It is our single most important issue,” Sen. Ron Wyden, D-Ore., told reporters about expanding unemployment. “The administration has raised questions, as you know, about how it would be administered. We have said, well, we think in most states it can be handled.”
Democrats were also pushing for a large state stabilization fund to answer the pleas of governors. Schumer said that issue, too, remained a sticking point.
“That’s another big issue. That’s a big issue that hasn’t been resolved,” Schumer told reporters late Friday, adding: “There are still many issues outstanding.”
Despite their disagreements on policy details lawmakers in both parties agreed time was of the essence in face of the unprecedented economic threat posed by the coronavirus, which has now brought much of the nation into lockdown.
“We need to deliver relief now,” McConnell said on the Senate floor. “We need to go big. We need to minimize new complexity. And we need to move swiftly.”
As originally proposed the bill includes an extensive list of proposals aimed at alleviating the economic shock facing both small and large businesses: delaying corporate taxes; providing zero-interest loans; and paring back the paid family leave plan recently approved by Congress, among other changes.
The plan includes numerous delays on corporate and business taxes, and would allow the hospitality industry to immediately write off the costs of building improvements, changing a provision in the 2017 tax law. These changes are opposed by many Democrats.
Beyond the general corporate tax changes, the Senate GOP bill also proposes relief for bigger firms and corporations, a move that some critics have alleged could amount to taxpayer funded bailouts. The bill would not provide direct cash subsidies to these large firms. But it does call for other forms of emergency federal help, such as low-interest loans. The airlines would receive $50 billion in “loans and loan guarantees,” while cargo air carriers would receive $8 billion.
The legislation also calls for creating an additional fund, of $150 billion, to help rescue other industries hurt by the coronavirus downturn. It gives the Treasury Department wide authority in determining which businesses qualify for the fund, which would give the Trump administration significant discretion over a large pool of money — and Senate Republicans are expected to increase the amount beyond $150 billion before the final text is introduced, according to three congressional aides and lobbyists aware of the internal discussions.
The bill’s enormous interventions for small firms appeared to be the portion of the legislation with the most bipartisan agreement. Spearheaded by Sen. Marco Rubio (R-Fla.), the proposal calls for $300 billion in loans to be made available through lenders certified by the Small Business Administration, with the maximum loan capped at $10 million. Unlike the part of the bill for large companies, small businesses could be eligible to have their loans forgiven at a future date if they retain their employees during this period at the same level as before the coronavirus hit.
Rubio told reporters that lawmakers are also looking at loosening the SBA definition of small business – currently set at 500 – to ensure that somewhat larger businesses don’t miss out on relief.
“Just making sure that we’re not cutting businesses off,” Rubio said, citing the example of a hotel that might have more than 500 employees, predominantly low-wage workers.
The legislation, as originally written by the Senate GOP, would have rolled back parts of the paid sick leave plan recently enacted by Congress and signed into law by Trump. Numerous Republican senators and business groups have complained that package requires firms to pay an expensive new benefit, but does not compensate them with a federal tax cut until they would already be driven out of business. It’s unclear whether Democrats would push back on changes to this area.
Democrats were, however, pushing for a variety of additional restrictions to ensure any corporate aid doesn’t amount to bailouts that help corporate executives at the expense of workers and taxpayers. Some in organized labor were irate over the bill as introduced and demanding changes.
Democrats and Republicans attacked the initial GOP bill design that aimed to limit the direct payments to lower-income households. The legislation would have provided $1,200 per adult and $500 for child, with checks beginning to phase out for those earning more than $75,000. But the poorest families, because they had no federal income tax liability, would have seen smaller benefits, with the minimum set at $600.
“There’s a lot of us who would like to see that changed,” said Sen. Mike Rounds, R-S.D. “They have the same expenses everybody else does. Just because they’re on the lower end of the income scale doesn’t mean they don’t have some basic expenses.”