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Wrong Way

Filings for weekly unemployment benefits rose for the first time in nearly four months, a sign the jobs recovery could be faltering. Initial unemployment claims rose by a seasonally adjusted 109,000 to 1.4 million for the week ended July 18, halting what had been a steady descent from a peak of 6.9 million in late March. The data also show that the number of people receiving benefits has shrunk in recent weeks. Taken together, claims and benefits totals suggest new layoffs are being offset by hiring and employers recalling workers, though at a slower pace than a few weeks ago, Eric Morath reports.

Last week’s increase in applications came after several states imposed new restrictions on businesses such as bars and restaurants when coronavirus cases rose.

WHAT TO WATCH TODAY

IHS Markit’s U.S. manufacturing index for the opening weeks of July is expected to rise to 52.0 from 49.8 at the end of June. Services are expected to rise to 51.0 from 47.9. (9:45 a.m. ET)

U.S. new-home sales for June are expected to rise to an annual pace of 702,000 from 676,000 a month earlier. (10 a.m. ET)

The Baker Hughes rig count is out at 1 p.m. ET.

TOP STORIES

Ugly, Bad and Good

Jobless claims aren’t the only data suggesting trouble for the labor-market recovery. U.S. employers added 4.8 million jobs in June, helping recoup some of the massive losses from earlier in the year. But the Census Bureau’s weekly household pulse surveys, which tracked the big rise that month, now indicate that a resurgent pandemic has reclaimed most of those gains. Of course, other indicators point to continued job gains, the weekly survey is a new product and it isn’t meant to stand in for the official monthly report. Even so, the dropoff is a worrisome sign for a struggling labor market.

Time is running short for millions of unemployed Americans. Senate Republicans scrapped their plans to release a proposal for the next coronavirus relief bill after continued differences with the White House on unemployment insurance and direct cash payments. With the delay, Republicans won’t roll out their roughly $1 trillion legislation until next week, further compressing an already tight timeline to reach an agreement with Democrats and pass a fifth coronavirus relief bill. A $600 weekly supplement to state unemployment benefits is set to expire July 31, though it will effectively end in many states this weekend, Andrew Restuccia and Andrew Duehren report.

Once Congress does approve an economic relief package, a second round of stimulus payments could reach many Americans faster than last time. The Internal Revenue Service now has procedures, online tools, bank-account information and coordination with other agencies that it didn’t have set up in advance when the first round of payments was approved in the spring, Richard Rubin reports.

Another bit of good news: Some of the businesses hit hardest by the pandemic are driving the jobs recovery. Health-care providers and restaurants—which closed during lockdowns—have recalled millions of laid off workers. Job growth has also been boosted by increased demand in a handful of industries, including logistics firms, financial services and retailers such as furniture stores, Eric Morath and Kim Mackrael report.

Corporate America Doesn’t Expect This to Be Over Soon

Hershey said subdued Halloween celebrations this year as a result of the coronavirus pandemic could hurt candy demand during a holiday that typically generates a tenth of its sales. The owner of Reese’s and Jolly Rancher said it is planning to make less Halloween-themed candy to avoid having loads of leftovers that it would have to pull back or try to sell at a discount, Annie Gasparro reports.

AMC Entertainment is pushing back the reopening of its U.S. theaters to mid-to-late August, after a number of summer blockbusters delayed their release dates. The nation’s largest theater chain previously said it would reopen at the end of July. U.S. theaters closed and Hollywood studios halted the release of major motion pictures in March as the pandemic took hold, and they remain in a holding pattern as several states are experiencing a resurgence in Covid-19 cases, Dave Sebastian reports.

Walt Disney canceled the planned August release of “Mulan” and said it would also delay the release of future installments in the “Avatar” and “Star Wars” series by a year, R.T. Watson and Erich Schwartzel report.

American Airlines and Southwest Airlines said they were tempering expectations for an air-travel recovery, as mounting coronavirus cases have driven down bookings by as much as 80% in some parts of the U.S. Southwest said cancellations are picking up and demand looks weaker heading into fall. Executives at American said bookings have started to slide and business travel, which usually picks up after Labor Day, shows no signs of resuming, Alison Sider and Doug Cameron report.

“In short, the crisis continues,” American Chief Executive Doug Parker said.

Europe’s Comeback

Encouraging news from Europe: Purchasing managers indexes for the U.K. and eurozone returned to growth this month, with output advancing at the fastest rate in years. The data suggest some economic rebound in the third quarter after a disastrous spring. “The concern is that the recovery could falter after this initial revival. Firms continue to reduce headcounts to a worrying degree, with many worried that underlying demand is insufficient to sustain the recent improvement in output,” IHS Markit economist Chris Williamson said. Manufacturing and service-sector activity are still contracting in Japan, though not as severely as prior months. U.S. data are out at 9:45 a.m. ET.

There’s Gold in Them Thar Hills

The price of gold neared an all-time high that has stood for almost nine years on Thursday, punctuating a furious rally driven by anxious investors seeking refuge from the coronavirus-induced economic slowdown. Prices have risen nearly 25% this year, extending an advance that began early in 2019. The coronavirus has sparked a global gold rush, with physical traders in London and New York trying to get their hands on more metal and individuals around the world ordering bars and coins, Amrith Ramkumar reports.

TWEET OF THE DAY

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Boom!

U.S. stocks wrapped up their best quarter in more than 20 years, a remarkable rally after the coronavirus pandemic brought business around the world to a virtual standstill. Just three months ago, investors were lamenting the end of the bull market—and the longest economic expansion on record—after major U.S. stock indexes lost about 35% of their value in less than six weeks. The subsequent rebound has been nearly as brisk. Partly thanks to an unprecedented $1.6 trillion stimulus package from the Federal Reserve and Congress and a surge in trading among individual investors, the rally has lifted everything from beaten-down energy stocks to apparel retailers to big technology firms, Michael Wursthorn reports.

The stock market rally stands in sharp contrast to economic output. The second quarter is expected to be the worst post-World War II period on record. There are signs that April was the worst month for the economy and a recovery is already under way. But a resurgence of coronavirus cases could threaten the pace of growth, leaving output and employment well below prepandemic levels for an extended period.

WHAT TO WATCH TODAY

The ADP employment report for June is expected to show a monthly gain of 2.5 million jobs. (8:15 a.m. ET)

IHS Markit’s U.S. manufacturing index for June is expected to tick up to 49.7 from a preliminary reading of 49.6. (9:45 a.m. ET)

The Institute for Supply Management’s manufacturing index for June is expected to rise to 49.5 from 43.1 a month earlier. (10 a.m. ET)

U.S. construction spending for May is expected to rise 0.6% from a month earlier. (10 a.m. ET)

Chicago Fed President Charles Evans speaks at a Chicago community forum at 10 a.m. ET.

The Federal Reserve releases minutes from its June 9-10 meeting at 2 p.m. ET.

TOP STORIES

Down on Main Street

Workplace scheduling-software company Homebase has a warning about Thursday’s U.S. employment report: It might overstate the economic health of Main Street businesses. Yes, employers probably added millions of jobs last month. But the pace of improvement at Homebase’s clients—smaller companies with a heavy dose of leisure and hospitality—was slower in June than in May. Notably, the real-time data shows activity fading in the second half of the month as coronavirus cases piled up in Texas, Arizona and elsewhere. The Labor Department conducted its surveys earlier in June, potentially leaving its report a poor barometer of more recent developments.

Economists are increasingly turning to alternative sources for a read on a fast-changing economy. Drexel University’s Andre Kurmann and colleagues developed a model using Homebase data that is meant to be comparable to the Labor Department’s monthly estimates. “Big takeaway is that recovery of small business employment has almost completely stalled in the last two weeks,” Mr. Kurmann said.

How can the U.S. slow the spread of Covid-19? A growing chorus of Republican officeholders and conservative media figures are calling for people to wear masks. Senate Majority Leader Mitch McConnell, Arizona Gov. Doug Ducey, Georgia Gov. Brian Kemp and Fox host Sean Hannity are among the latest. There is widespread scientific and medical consensus that face masks are a key part of the public policy response for tackling the pandemic, Catherine Lucey reports.

There’s also a robust economic argument. Economists at Goldman Sachs find a national mask mandate would increase usage substantially and cut the daily growth rate of confirmed Covid-19 cases by a full percentage point, to 0.6%. Weighed against other potential actions to reduce the infection rate, Goldman concludes: “A face mask mandate could potentially substitute for lockdowns that would otherwise subtract nearly 5% from GDP.”

Yankee Stay Home

The European Union is starting to open its borders to travelers from as many as 15 countries. The U.S. isn’t one. The decision comes after days of wrangling between the bloc’s member states, which were divided over the economic benefits of opening up ahead of the summer tourist season amid concerns about a second wave of the coronavirus, Laurence Norman reports.

U.S. consumers weren’t going anyway: In June, the share of households planning to vacation in a foreign country fell to the lowest level since 1986, according to a Conference Board survey.

One consequence of falling air traffic: Airbus said it would cut 15,000 jobs across its commercial aircraft division, citing what it expects to be the Covid-19 pandemic’s yearslong impact on the aviation sector. The majority of the cuts, which amount to about 11% of the company’s total workforce, will be in France and Germany. Airbus doesn’t expect a recovery in air traffic to prepandemic levels before 2023, Benjamin Katz reports.

Pandemic Demand

FedEx said Christmas-like levels of online shopping boosted its business, and it is seeing tentative signs that the global economy is recovering from the coronavirus pandemic. The company said that 72% of shipments in the U.S. went to residences in the latest quarter, compared with 56% a year ago, Paul Ziobro and Allison Prang report.

Conagra Brands said it is investing in more manufacturing capacity as demand for its packaged foods remains strong this summer. The maker of Hunt’s tomatoes, Healthy Choice meals and Birds Eye frozen vegetables said its comparable sales jumped 22% in the quarter that ended May 31 and have continued to increase since then. Retailers and food makers want to be prepared for a surge in grocery shopping, which is likely if a second wave of Covid-19 cases occurs as forecast, Annie Gasparro reports.

Gold prices extended a recent rally Tuesday with uncertainty about the economic recovery and ultralow interest rates lifting demand for the haven metal. Prices ended the second quarter up 13%, their biggest quarterly advance since early in 2016. Tuesday’s close marked gold’s first close above $1,800 since September 2011, and prices are within about 5% of their all-time high of $1,891.90 from August of that year, Amrith Ramkumar reports.

WHAT ELSE WE’RE READING

The Covid-19 recession isn’t like other downturns. “Traditional macroeconomic tools–stimulating aggregate demand or providing liquidity to businesses–may have diminished capacity to restore employment when consumer spending is constrained by health concerns. During a pandemic, it may be more fruitful to mitigate economic hardship through social insurance. More broadly, this analysis illustrates how real-time economic tracking using private sector data can help rapidly identify the origins of economic crises and facilitate ongoing evaluation of policy impacts,” Harvard’s Raj Chetty and colleagues write in a new working paper.

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Original Source: blogs.wsj.com

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

Oil Bust

Investment in the U.S. shale sector will drop by half this year, the International Energy Agency said Wednesday, as access to capital and investor confidence dry up. American shale drillers helped the U.S. produce more than 13 million barrels of oil a day earlier in 2020—before the coronavirus pandemic forced governments world-wide to impose lockdowns and travel bans on their citizens. Now, the IEA expects the largest drop in global energy investment in history, with worldwide spending on oil and gas decreasing by a third and the financing of all energy projects declining by 20%, David Hodari reports.

That’s bad news for the economy. The energy sector helped lead the U.S. out of the last recession before falling oil prices caused a pullback in investment in 2015 and 2016. That doesn’t look likely to repeat as the country tries to emerge from a sharp, coronavirus-induced downturn.

WHAT TO WATCH TODAY

The Richmond Fed’s manufacturing survey for May is out at 10 a.m. ET.

The Federal Reserve’s beige book is out at 2 p.m. ET.

St. Louis Fed President James Bullard speaks at 12:30 p.m. ET and Atlanta Fed President Raphael Bostic speaks at 3 p.m. ET.

TOP STORIES

More Signs the Economy Is Stabilizing

U.S. consumer confidence held roughly steady in May as households worried about the present but grew a little more optimistic about future economic conditions.

Purchases of newly built single-family homes increased—a little—in April, a stronger-than-expected result during a period marked by stay-at-home orders and economic uncertainty.

And the Dallas Fed said: “The contraction seen in the Texas manufacturing sector seems to have peaked in April, as the pace of decline slowed notably in May.” Even so, the bank’s latest manufacturing survey showed production contracting for the second straight month.

In a nutshell: “The free fall started to stabilize in May, but the economy is in a really deep hole,” said Naroff Economics president Joel Naroff.

Back-to-Work Bonus

The Trump administration is examining proposals to provide cash incentives to encourage unemployed Americans to return to work. Larry Kudlow, the director of the White House National Economic Council, told Fox News the-back to-work bonus is “something we’re looking at very carefully.” Mr. Kudlow was asked about a proposal by Sen. Rob Portman (R., Ohio) to provide a temporary $450-a-week bonus for unemployed workers returning to work, on top of their wages, Andrew Restuccia reports.

Republicans joined with Democrats in March to pass an economic-aid bill that included enhanced unemployment payments of $600 a week through July. Since, federal outlays for unemployment insurance have skyrocketed, totaling $79.7 billion over the past five weeks, according to figures tracked by the WSJ’s Anthony DeBarros.

Underscoring what is likely to be a long, difficult road for the labor market, Boeing will this week announce about 2,500 voluntary layoffs in the first phase of broader cuts triggered by the coronavirus-driven collapse of global air travel. And Amtrak is preparing to cut up to 20% of its workforce. Ridership and ticket revenue at the company have fallen by 95% since the pandemic began, Chief Executive Bill Flynn told Amtrak workers.

Lucky Seven

China set a reference rate for the yuan at its weakest point in 12 years, a signal that Beijing sees the benefits of a weaker currency as it grapples with an economic slowdown and rising tensions with Washington. The People’s Bank of China set a daily midpoint for the yuan at 7.1293 per dollar, the lowest level since February 2008. The central bank lets the onshore yuan trade in a band around this fix. The currency also trades in less tightly controlled offshore markets. The yuan broke below 7 per dollar in August, prompting President Trump to accuse Beijing of manipulating its currency, Joanne Chiu reports.

Cheers (Drink to That)

As the summer season approaches, consumers might end up paying more for their beer and soft drinks. The reason? The cost of the bubbles in the drinks is going up. Carbon dioxide is a byproduct of ethanol, which by federal mandate is mixed into gasoline to help it burn more cleanly. But fewer people are driving because of the Covid-19 lockdowns, and demand for gasoline has plunged, prompting ethanol plants to shut down. That has put pressure on the source for roughly 40% of all industrial carbon dioxide produced nationwide—a key ingredient for soft drinks and beers. Carbon-dioxide production this year has fallen by roughly 30% from last year’s levels, Vipal Monga reports.

WHAT ELSE WE’RE READING

U.S. workers have lost power. “The evidence in this paper suggests that the American economy has become more ruthless, as declining unionization, increasingly demanding and empowered shareholders, decreasing real minimum wages, reduced worker protections, and the increases in outsourcing domestically and abroad have disempowered workers–with profound consequences for the labor market and the broader economy. We argue that the reduction in workers’ ability to lay claim to rents within firms could explain the entirety of the change in the distribution of income between labor and capital in the United States in recent decades, and could also explain the rise in corporate valuations, profitability, and measured markups, as well as some of the decline in the [non-accelerating inflation rate of unemployment],” Harvard’s Anna Stansbury and Lawrence Summers write.

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Real Time Economics has launched a downloadable calendar with concise previews forecasts and analysis of major U.S. data releases. To add to your calendar please click here.

 

Original Source: blogs.wsj.com

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