Economic News From Last Week

Economic News From Last Week:

May 7 – New York Times (Benedict Carey and James Glanz): 

“New York City’s coronavirus outbreak grew so large by early March that the city became the primary source of new infections in the United States, new research reveals, as thousands of infected people traveled from the city and seeded outbreaks around the country. 

The research indicates that a wave of infections swept from New York City through much of the country before the city began setting social distancing limits to stop the growth.  ‘We now have enough data to feel pretty confident that New York was the primary gateway for the rest of the country,’ said Nathan Grubaugh, an epidemiologist at the Yale School of Public Health.”

May 5 – Los Angeles Times (Ralph Vartabedian): 

“Scientists have identified a new strain of the coronavirus that has become dominant worldwide and appears to be more contagious than the versions that spread in the early days of the COVID-19 pandemic, according to a new study led by scientists at Los Alamos National Laboratory. The new strain appeared in February in Europe, migrated quickly to the East Coast of the United States and has been the dominant strain across the world since mid-March… In addition to spreading faster, it may make people vulnerable to a second infection after a first bout with the disease, the report warned.”

May 5 – Bloomberg (Jen Skerritt and Lydia Mulvany): 

“America’s meat-processing plants are starting to reopen, but not all workers are showing up. Some still fear they’ll get sick after coronavirus outbreaks shut more than a dozen facilities last month. Employees are taking leave, paid and unpaid -- or just quitting. 

At a JBS USA plant in Greeley, Colorado, absenteeism is running as high as 30%. Before the pandemic, it was about 13%. The company is paying about 10% of the workforce -- people deemed vulnerable -- to stay home. Others aren’t coming in because they are sick. But some workers are staying home because they are ‘scared’…”

May 4 – Reuters (Benedict Mander): 

“The U.S. Treasury Department… said it plans to borrow nearly $3 trillion in the second quarter of 2020 - more than five times larger than the previous record - 

as the federal government spends at a frantic pace to mitigate the impact of the coronavirus on the U.S. economy. …Treasury said it would borrow $2.999 trillion during the April-June quarter - higher also than the previous record borrowing for a full fiscal year of $1.8 trillion in 2009.”

May 3 – Financial Times (Stephanie Kelton and Edward Chancello): 

“We are seeing wartime levels of spending, driving deficits — and public debt — to new highs. France, Spain, the US, and the UK are all projected to end the year with public debt levels of more than 100% of gross domestic product, while Goldman Sachs predicts that Italy’s debt-to-GDP ratio will soar above 160%. In Japan, Prime Minister Shinzo Abe has committed to nearly $1tn in new deficit spending to protect a $5tn economy, a move that will push Japan’s debt ratio well above its record of 237%. With GDP collapsing on a global scale, few countries will escape. In advanced economies, the IMF expects average debt-to-GDP ratios to be above 120% in 2021.”

May 6 – CNBC (Stephanie Landsman): 

“Chinese consumers remain fearful of going out in public, shopping, going to movies and enjoying activities that put them in close proximity with their neighbors,’ the former Morgan Stanley Asia chairman told CNBC…” ‘Consumer behavior is not all that dissimilar in populations subjected to an unprecedented shock in their health security.’” One of the world’s leading authorities on Asia is worried Wall Street is miscalculating China’s efforts to reopen its economy. While it’s going relatively smoothly on the supply side, Yale University senior fellow Stephen Roach warns the demand side is struggling, and that’s a bad sign for the U.S. economy as it begins reopening. 

May 7 – Associated Press (Pan Pylas): 

“The Bank of England warned… that the British economy could suffer its deepest annual contraction in more than three centuries as a result of the coronavirus pandemic, before roaring back next year. In what it describes as a ‘plausible’ scenario, the bank said the British economy will be 30% smaller at the end of the first half of the year than it was at the start of it, with the second quarter seeing a 25% slump alone following a 3% decline in the first.”

May 4 – Wall Street Journal (Kate Davidson): 

“The U.S. government expects to borrow a record $4.5 trillion this fiscal year as it steps up spending to battle what is likely to be the deepest economic downturn since the Great Depression… 

The anticipated new debt for the year ended Sept. 30 is more than triple last year’s $1.28 trillion. The government’s needs are likely to grow even larger as lawmakers on Capitol Hill take aim at the next round of fiscal relief, which could provide hundreds of billions more in federal spending, including money for cities and states to plug gaping holes in their own budgets.”

May 7 – Associated Press (Christopher Rugaber):

“Roughly 33.5 million people have now filed for jobless aid in the seven weeks since the coronavirus began forcing millions of companies to close their doors and slash their workforces. That is the equivalent of one in five Americans who had been employed back in February, when the unemployment rate had reached a 50-year low of just 3.5%.”

May 4 – Reuters (Lindsay Dunsmuir): 

“Loan officers at U.S. banks reported significantly tightening standards and terms on business loans in the first three months of the year as the coronavirus outbreak in the United States began to shutter large parts of the economy…

The officers also said in the Federal Reserve survey… that there was greater demand for business loans from medium- and large-sized firms, but that business loan demand from small businesses was roughly unchanged. Banks reported tightening standards across all three consumer loan categories — credit card loans, auto loans, and other consumer loans - but saw weaker demand for them…”

May 4 – Wall Street Journal (Sarah Chaney): 

“California has become the first state to borrow money from the federal government so it can continue paying out rising claims for unemployment benefits during the coronavirus pandemic. 

The Golden State borrowed $348 million in federal funds after receiving approval to tap up to $10 billion for this purpose through the end of July… The U.S. government also has approved loans of up to $12.6 billion for Illinois and up to $1.1 billion for Connecticut through the end of July to replenish state unemployment-insurance funds…”

May 2 – Bloomberg (Amanda Albright, Danielle Moran, and Fola Akinnibi): 

“In Dayton, Ohio, Mayor Nan Whaley has furloughed a quarter of the city’s workforce and is warning that more cuts may follow. In Baltimore, …Mayor Bernard Young is negotiating layoffs with the police union. And in Houston, Mayor Sylvester Turner is deferring all five police cadet classes. New York’s governor, Andrew Cuomo, may have only been referring to his state when he declared… in March that ‘we are broke,’ but he was, in a broader sense, speaking for the vast bulk of city and county and state governments in America. Never before have U.S. municipalities been hit so hard or so quickly or in so many different ways as they are right now by the coronavirus pandemic. With tax revenue plunging and unemployment benefit costs skyrocketing, budget shortfalls for state governments alone are projected to swell to more than $650 billion over the next three years…”

May 8 – Bloomberg (Joe Light): 

“Mortgage rates are at record lows, but borrowers hoping to take advantage are running into the toughest loan-approval standards in years. Over the past month, lenders have put in place higher credit-score and down payment requirements, and in some cases stopped issuing certain types of loans altogether, in effect shutting down a large swath of the mortgage market. The triggers, industry executives say, include lenders becoming risk-averse during the coronavirus crisis, knock-on effects of Congress allowing millions of borrowers to delay their monthly payments, and policies implemented amid the pandemic by mortgage giants Fannie Mae and Freddie Mac. The impact has been dramatic, with one model showing mortgage credit availability has plunged by more than 25% since the U.S. outbreak of the virus.”

May 3 – Financial Times (Chris Flood): 

“The financial strength of the US state pension system has deteriorated to its weakest position in at least three decades as a result of the market turmoil unleashed by the coronavirus pandemic. 

The aggregate funded ratio for US state pension plans dropped 12.2 percentage points during the first quarter to 62.6%, according to Wilshire Consulting… The large drop was due mainly to sharp falls across financial markets during March, leading to an estimated average 15.7% decline in the value of assets held by 130 of the largest state pension plans.”

May 5 – Reuters (David Shepardson and Tracy Rucinski): 

“U.S. airlines are collectively burning more than $10 billion in cash a month and averaging fewer than two dozen passengers per domestic flight because of the coronavirus pandemic, industry trade group Airlines for America said in prepared testimony… ahead of a U.S. Senate hearing…”

May 5 – Reuters (Tommy Wilkes): 

“Companies raised new debt on bond markets at a record rate in April, with European markets clocking up their busiest month for capital raising… In Europe, investment grade-rated companies raised $83.2 billion in April, according to Refinitiv data, beating the last biggest month in 2009 as central banks stepped in to unblock credit markets frozen by panic over the coronavirus. The flurry of European activity lifted global investment grade issuance to a record $350 billion - the second consecutive record month for top-rated corporate debt… In the U.S. market, firms in April raised $162.7 billion, beaten only by March’s record…”

May 6 – Financial Times (Robert Armstrong): 

“In the US, non-financial corporate debt was about $10tn at the start of the crisis. At 47% of gross domestic product, it has never been greater. Under normal conditions this would not be a problem, because record-low interest rates have made debt easier to bear. Corporate bosses, by levering up, have only followed the incentives presented to them. Debt is cheap and tax deductible so using more of it boosts earnings. But in a crisis, whatever its price, debt turns radioactive. As revenues plummet, interest payments loom large. Debt maturities become mortal threats. The chance of contagious defaults rises, and the system creaks.”

May 7 – Financial Times (Nikou Asgari and Joe Rennison): 

“The number of companies with rock-bottom credit ratings has exceeded the peak of the 2008 financial crisis, as dozens of businesses struggling under heavy debt burdens have been downgraded. Many of the companies suffering cuts to their ratings are owned by private equity firms… The trio joined a long list of companies whose debt was docked by Moody’s last month, as efforts to reduce the spread of Covid-19 squeezed cash flows. The total number of companies on the bottom five rungs of the agency’s credit ratings ladder, along with those at risk of a downgrade from the rung above, has grown by 213 to 412, marking a more than 40% increase from the depths of the last financial crisis.”

May 7 – Reuters (Lusha Zhang):

 “China’s exports unexpectedly rose in April for the first time this year as factories raced to make up for lost sales due to the coronavirus pandemic, but a big fall in imports signaled more trouble ahead as the global economy sinks into recession… Overseas shipments in April rose 3.5% from a year earlier… That compared with a 15.7% drop forecast… Imports sank 14.2% from a year earlier, the biggest contraction since January 2016 and below market expectations of an 11.2% drop.”

May 5 – Financial times (Martin Arnold and Tommy Stubbington): 

“Germany’s constitutional court has threatened to block fresh purchases of German bonds through the European Central Bank’s flagship stimulus programme, potentially weakening the bloc’s monetary policy response to the coronavirus crisis. The court… ordered the German government and parliament to ensure the ECB carried out a “proportionality assessment” of its vast purchases of government debt to ensure their ‘economic and fiscal policy effects’ did not outweigh its policy objectives, and threatened to block new bond-buying unless the ECB did so within three months. In recent weeks the central bank has vastly expanded its quantitative easing programme of bond-buying to mitigate the economic consequences of coronavirus. It has bought more than €2.2tn of public sector debt since launching quantitative easing in 2014 in an attempt to halt a slide in inflation.”

May 6 – Associated Press (Lorne Cook): 

“The European Union predicted… ‘a recession of historic proportions this year’ due to the impact of the coronavirus as it released its first official estimates of the damage the pandemic is inflicting on the bloc’s economy. The 27-nation EU economy is predicted to contract by 7.5% this year, before growing about 6% in 2021, assuming countries steadily ease their lockdowns.”

May 7 – Bloomberg (Shannon Sims): 

“‘Brazilian President Jair Bolsonaro’s response on April 28 to the news that his country had surpassed 5,000 coronavirus deaths wasn’t exactly encouraging. Bolsonaro has made a point of being as contrarian as possible during the pandemic, refusing public-health guidance even as Brazil’s hospitals are overwhelmed and gravediggers work as fast as they can to bury the dead. Now Brazil faces a frightening outlook. Weeks after Covid-19 cases surged in other parts of the world, the number of people to test positive continues to rise in Latin America’s biggest country, with no peak in sight.”

May 3 – Bloomberg (Jordan Fabian, Jennifer Jacobs, and Iain Marlow): 

“U.S. President Donald Trump promised a ‘conclusive’ report on the Chinese origins of the coronavirus outbreak, showing relations between the world’s biggest economies are set to remain rocky at least until the next election… Trump pledged the report… in a ‘virtual town hall’ with Fox News, in which he added that he had little doubt that Beijing misled the world about the scale and risk of the disease… ‘We’re going to be giving a very strong report as to exactly what we think happened. And I think it will be very conclusive,’ Trump said… ‘My opinion is they made a mistake. They tried to cover it. They tried to put it out, just like a fire.’”

May 6 – Wall Street Journal (Kate O’Keeffe, Michael C. Bender and Chun Han Wong): 

“Relations between the U.S. and China, strained for years, have deteriorated at a rapid clip in recent months, leaving the two nations with fewer shared interests and a growing list of conflicts. The Trump administration has moved to involve much of the U.S. government in a campaign that includes investigations, prosecutions and export restrictions. Nearly every cabinet and cabinet-level official either has adopted adversarial positions or jettisoned past cooperative programs with Beijing… Chinese officials… are following through on President Xi Jinping’s call last fall to resist anything they perceive as standing in the way of China’s rise. They have stepped up military activities in the contested South China Sea and intimidation of Taiwan, a U.S. ally, and state media has issued extraordinary public denunciations of Secretary of State Mike Pompeo.”