Medical workers prepare to intubate a coronavirus disease (COVID-19) patient at the United Memorial Medical Center’s coronavirus disease (COVID-19) intensive care unit in Houston, Texas, U.S., June 29, 2020.
Callaghan O’Hare | Reuters
Rising coronavirus cases will limit growth in what will be an otherwise robust third-quarter rebound in the U.S., according to Goldman Sachs.
The bank’s economists now see third-quarter gross domestic product rising by 25% on an annualized basis. That’s down from the initial estimate of 33%, with the reduction due primarily to concerns that increasing virus cases in states such as Florida, Texas and Arizona will slow the pace of reopening.
“The sharp increase in confirmed coronavirus infections in the US has raised fears that the recovery might soon stall,” Jan Hatzius, Goldman’s chief economist, said in a note. “Although a significant part of the increase reflects higher testing volumes … a broader look at the CDC criteria for reopening shows that not only new cases but also positive test rates, the share of doctor visits for covid-like symptoms, and hospital capacity utilization have deteriorated meaningfully in the last few weeks.”
GDP fell 5% in the first quarter, part of a mostly self-induced recession aimed at stopping the coronavirus spread. It was the biggest one-quarter drop since the fourth quarter of 2008, during the Great Recession.
As cases decreased, states slowly began reopening amid hopes that the sharp drawdown would be short-lived. Indeed, even if Goldman’s reduced call is correct, that would mark, by a wide margin, the biggest quarterly rebound since at least 1947.
The U.S. has seen 340,000 new virus cases over the past week, a rise of 13.4%. That has come with 3,447 deaths, a 2.9% increase.
Hatzius said he still sees reason for optimism.
Manufacturing and construction have quickly turned back to expansion after suffering their worst rollbacks since the financial crisis. The economy added another 4.8 million jobs in June as the unemployment rate fell to 11.1%.
Moreover, he cited medical advances that, combined with renewed restrictions in hard-hit states, that could bring the virus reproduction rate below 1.
Political considerations also figure in: President Donald Trump’s landmark rollback in corporate tax rates likely would be reversed should he fail to gain re-election this year. But Hatzius said that also would curtail Trump’s trade protectionism, which has jolted markets at multiple points over the past three years.
“Although tensions with China will undoubtedly persist regardless of the election outcome, a re-escalation of the trade war would become less likely and the prospects for international cooperation on vital issues such as climate change would improve,” Hatzius wrote.
Still, Goldman expects that U.S. stocks will underperform against their global competitors as the nation “underperforms in the near term as it partly reverses its overly hasty reopening in the consumer sector.”
Nonfarm payrolls jumped by 4.8 million in June and the unemployment rate fell to 11.1% as the U.S. continued its reopening from the coronavirus pandemic, the Labor Department said Thursday.
Economists surveyed by Dow Jones had been expecting a 2.9 million increase and a jobless rate of 12.4%. The report was released a day earlier than usual due to the July Fourth U.S. holiday.
The numbers capture the move by all 50 states to get activity moving again after the virus seized up much of the U.S., particularly service-related industries.
However, because the government survey comes from the middle of the month, it does not account for the suspension or rollbacks in regions hit by a resurgence in coronavirus cases.
Leisure and hospitality again accounted for the biggest jump, as the sector saw a 2.1 million gain, accounting for about 40% of the total growth.
Another big contributor to the decline of the jobless rate was a plunge in those on temporary layoff. That total fell by 4.8 million in June to 10.6 million after a decrease of 2.7 million in May. The short-term jobless level fell by 1 million to 2.8 million.
The labor force participation level saw a sharp bump, rising to 61.5%, which brings it to 1.9 percentage points below its February level, a month before the coronavirus pandemic shut down much of the U.S. economy.
Jobs were equally balanced at 2.4 million apiece for full- and part-time workers.
The headline unemployment rate was understated sightly due to counting errors at the Bureau of Labor Statistics. Workers who still have jobs but have not been working are being counted as employed and even though they are supposed to be considered unemployed under BLS rules.
However, the BLS said that discrepancy “declined considerably” in June, making the actual unemployment rate only about 1 percentage point higher than the reported level.
An alternative measure of unemployment that includes discouraged workers and the underemployed fell to 18% from 21.2%.
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The Federal Reserve on Wednesday released the minutes from its June 9-10 meeting, during which it held interest rates steady and had an in-depth discussion about capping bond yields and strengthening its guidance about where policy will be set in the future.
Central bankers on the Federal Open Market Committee voted to hold their benchmark short-term borrowing rate in a range of 0%-0.25%. That’s where the Fed took the rate in mid-March as it sought to provide support for an economy reeling from the coronavirus.
In addition to the rate move, the committee also released its expectations for various data points. The median GDP projection for 2020 was a contraction of 6.5%, followed by a 5% increase in 2021 and 3.5% the following year.
“Participants commented that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook,” the minutes stated.
Despite the comparatively bright outlook for 2020, officials noted that the fiscal help Congress provided for households, businesses and state and local govenrnments “might prove to be insufficient.”
With near-zero rates unlikely to budge as the U.S. remains mired in recession, Fed watchers were looking for nuance from the minutes release. Among the items on the market’s radar will be indications of bond yield controls and enhanced forward guidance about what it will take for the central bank to move from its ultra-accommodative policy stance.
Members at the meeting indicate that they would prefer future policy moves tied to inflation, while just “a couple” said they would rather unemployment be the guide.
In addition to the talk of yield curve control and forward guidance, members also discussed the impact of asset purchases, which the Fed has stepped up this year. Officials noted that “constraints” under the current environment are making the purchases less effective than they were in the wake of the financial crisis in 2008.
In speeches since the meeting, Fed Chairman Jerome Powell has been cautious on the economy, saying the outlook is highly uncertain amid a recent surge in coronavirus cases. During that time, the Fed has started up two more lending programs, one to buy corporate bonds and the other to provide funding to small- and medium-sized businesses.
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More than half of U.S. manufacturers reported better-than-expected expansion in June, the first time that has happened since the coronavirus pandemic locked down the domestic economy.
The Institute for Supply Manufacturing survey showed a reading of 52.6, a percentage count of firms that said their businesses are growing. That’s up from May’s 43.1 and the 41.5 trough in April that came a month after shelter-in-place orders took much of the nation’s productive capacity offline.
Economists surveyed by Dow Jones had been looking for a 49.5 reading.
“As predicted, the growth cycle has returned after three straight months of COVID-19 disruptions,” said Timothy R. Fiore, ISM chair. “Demand, consumption and inputs are reaching parity and are positioned for a demand-driven expansion cycle as we enter the second half of the year.”
Only five of the 18 industries surveyed reported contraction for the month. Expansion was best among textile mills, wood products and furniture and related products.
Employment jumped to 42.1 from 32.1 in May, while production surged 24.1 points to 57.3. New orders rose 24.6 points to 56.4 and prices increased from 40.8 to 51.3.
Of the sub-indices, only supplier deliveries showed a monthly decline, dropping 11.1 points to 56.9. Exports and imports both posted gains though they remained below 50.
The report comes as all 50 states proceed into various phases of reopening. Some hotspots, particularly in the South and West, either have had to halt or curtail some activities in the face of a resurgence in the virus.
Private payrolls up 2.37 million in June; May revised up to 3.065 million gain from 2.76 million loss, ADP says
A waitress wearing a mask helps customers at Cafe Luxembourg’s outdoor seating as the city moves into Phase 2 of re-opening following restrictions imposed to curb the coronavirus pandemic on June 22, 2020 in New York City.
Alexi Rosenfeld | Getty Images
Companies in June continued to bring workers back from their pandemic furlough as the national economy slowly came back to life.
Private payrolls grew by 2.369 million for the month, a bit lower than the 2.5 million expectation from economists surveyed by Dow Jones, according to a report Wednesday from ADP and Moody’s Analytics.
The total actually represented a decline from the previous month, which saw a dramatic upward revision to 3.065 million. ADP initially said May saw a loss of 2.76 million. The firm did not immediately explain the massive shift.
For June, hiring was especially strong in the pivotal leisure and hospitality industry, which took the biggest hit as measures aimed at curbing the coronavirus spread meant shutting down most bars and restaurants across the country. The sector added 961,000, by far the biggest gain in any industry.
“Small business hiring picked up in the month of June,” said Ahu Yildirmaz, vice president and co-head of
the ADP Research Institute. “As the economy slowly continues to recover, we are seeing a significant rebound in industries that once experienced the greatest job losses.”
In addition to the big gains in hospitality, construction — another hard-hit industry — added 394,000 and manufacturing rose by 88,000. The goods sector in total saw a net gain of 457,000 positions.
On the services side, which grew by 1.912 million, other big gainers were trade, transportation and utilities (288,000), education and health services (283,000), and the “other services” category (215,000). Professional and businesses services added 151,000 and financial activities, which includes Wall Street jobs, was up 65,000.
Small businesses added 937,000 to lead industries by size. Companies with 500 or more workers were up 873,000 while medium-sized firms added 559,000.
The ADP count comes the day before the Labor Department releases its official nonfarm payrolls count for June. Economists are looking for a gain of 2.9 million after May’s 2.5 million jump, a number that contrasted sharply with the ADP count and shattered Wall Street estimates of an 8 million job loss.
The volatile numbers point up how difficult estimating the jobs situation is amid an economy struggling to get back to normal following the coronavirus-inducted shutdown. The national unemployment rate was a 50-year low 3.5% prior to the shutdown and is now 13.3%.
Even as jobs seem to be coming back, states are still trying to catch up with claims for unemployment insurance. That weekly number also comes out Thursday and is expected to indicate another 1.38 million new claims even as jobs on net are brought back. The discrepancy is part a backlog at the state level and possible counting errors under a special program targeted at pandemic-related claims, according to a Bloomberg News report Wednesday.
Amy McGrath address supporters after her loss during her Election Night Event at the EKU Center for the Arts on November 6, 2018 in Richmond, Kentucky.
Jason Davis | Getty Images
Democrat Amy McGrath defeated Charles Booker in a close Senate primary race in Kentucky shaped in its final stretch by a reckoning over systemic racism, NBC News projected.
McGrath led Booker by about 2 percentage points as the state counted the final mail-in ballots a week after the election. She will try to unseat Senate Majority Leader Mitch McConnell in a November election closely watched by Democrats who hold a special ire for the top GOP senator.
McGrath, a 45-year-old White Marine veteran, once seemed to have a tight grip on the election on the strength of more than $40 million in fundraising. But Booker, a 35-year-old Black state representative, gained traction as he joined recent protests against police violence and racism — including the March police shooting of Breonna Taylor, a 26-year-old Black woman, in his hometown of Louisville.
Rep. Charles Booker
Bryan Woolston | AP
As the coronavirus pandemic led certain states to expand voting by mail to promote safety, the state expected roughly 800,000 votes by mail — many of them cast days before the election, according to The Washington Post. In the Democratic Senate primary, Booker fared significantly better among voters who cast their ballots in person than those who did so by mail.
While McGrath had support from Senate Democrats’ campaign arm and Minority Leader Chuck Schumer, Booker earned late endorsements from liberal stalwarts such as Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass. McGrath has vouched for a more centrist policy platform than Booker, who has embraced plans from a single-payer “Medicare for All” system and a Green New Deal energy and jobs program.
A Booker win would have added to apparent triumphs for liberal candidates in congressional primaries last week. Jamaal Bowman, a Black middle school principal, leads Rep. Eliot Engel in the Democratic primary for New York’s 16th District, while Black lawyer and activist Mondaire Jones leads the primary to succeed retiring Democratic Rep. Nita Lowey in the state’s 17th District. Both men ran on a progressive platform.
McGrath faces a challenge in trying to unseat McConnell. The senator won his last election in 2014 by more than 15 percentage points.
Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin are testifying Tuesday before the House Financial Services Committee. The topic will be both agencies’ response to the coronavirus pandemic.
Since mid-March, the Fed and Treasury have introduced a bevy of joint programs aimed at lending money where it is needed. The most recent launches are the Main Street Lending Program aimed at companies with fewer than 15,000 employees, and credit facilities aimed at buying corporate bonds.
Powell’s prepared remarks for the hearing indicate a commitment to keep the programs going to whatever extent necessary. The central bank chief also expressed concern about the “extraordinarily uncertain” outlook as the path of the coronavirus remains unclear.
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Federal Reserve Chair Jerome Powell holds a news conference following the Federal Reserve’s two-day Federal Open Market Committee Meeting in Washington, July 31, 2019.
Sarah Silbiger | Reuters
Federal Reserve Chairman Jerome Powell said big questions remain over the outlook for the economy, particularly in light of ongoing efforts to contain the coronavirus pandemic.
In remarks he will deliver Tuesday to the House Financial Services Committee, the central bank leader turned up concerns he had expressed earlier this month about growth as the U.S. remains mired ina recession that began in February.
“Output and employment remain far below their pre-pandemic levels. The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” Powell said.
“A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities,” he added. “The path forward will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed.”
His remarks come amid a national spike in coronavirus cases rooted in states that have more aggressively relaxed restrictions implemented to contain the pandemic.
Powell stressed the importance of building on recent momentum, which he said will be predicated on the path of the virus.
“Many businesses are opening their doors, hiring is picking up, and spending is increasing. Employment moved higher, and consumer spending rebounded strongly in May,” he said. “We have entered an important new phase and have done so sooner than expected. While this bounceback in economic activity is welcome, it also presents new challenges — notably, the need to keep the virus in check.”
In response to the pandemic, the Fed has implemented a variety of programs aimed at keeping markets functioning and directly lending where it is needed.
The Fed also has cut its benchmark short-term lending rate to near zero, where Powell pledged to keep it until the economy recovers.
“In March, we lowered our policy interest rate to near zero, and we expect to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals,” he said. “We will closely monitor developments and are prepared to adjust our plans as appropriate to support our goals.”
Jobless claims totaled 1.48 million last week as unemployment related to the coronavirus pandemic remained stubbornly high, though those receiving benefits fell below 20 million for the first time in two months.
Economists surveyed by Dow Jones had been expecting 1.35 million claims.
While the weekly numbers remained high and were worse than expectations for the second straight week, the total of those receiving benefits continued to fall. Total recipients, or continuing claims, fell by 767,000 to 19.52 million.
There also were 728, 120 initial claims under the Pandemic Unemployment Assistance program.
The most recent number marked the 14th straight week that filings remained above 1 million, a total first eclipsed for the week ended March 21. That was shortly after the World Health Organization declared the pandemic and much of the U.S. economy went into lockdown.
Claims had never been above a million prior to that. The coronavirus-era record is just shy of 6.9 million, hit in late March.
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The Federal Reserve is seeing high demand for its business loan initiative put in place to help smaller companies get through the coronavirus-induced recession, Boston Fed President Eric Rosengren said Friday.
As the Main Street lending facility wraps up its first full week of operation, Rosengren reported brisk interest on the borrowing side amid what looks like tepid interest from banks thus far.
“Of course there is a learning curve, but we are seeing tremendous interest in the loans from businesses,” he said in prepared remarks. “Lenders are determining how they’ll participate in and communicate about the program. Borrowers will need to persist during this ramp-up phase.”
The Boston Fed is implementing the program aimed at providing loans to companies with fewer than 15,000 employees.
Though it was announced early in the current crisis, getting the program off the ground has been a challenge as the Fed has listened to feedback from the banking and business communities. The Fed recently announced modifications to the initial plans — maximum and minimum loan sizes were changed to provide funding from $250,000 to $300 million, maturities were extended from four to year years, and borrowers now will pay no interest in the first year and not have to pay principal for two years.
In addition, the Fed now will now buy 95% of the loans, an effort to ease the risk for participating banks.
Rosengren said the Fed has heard from “over 200 financial institutions, large and small” that have registered to participate. There are nearly 4,500 commercials banks in the U.S.
Despite what appears to be a fairly low level of bank participation in the first week, Rosengren said he remains “very positive about the promise of the program in helping local businesses and lenders maintain vital business credit during these very challenging economic times.”
The central bank official said such programs as well as the other measures the Fed has taken will be important as the economy struggles to get back on its feet.
Rosengren has one of the more pessimistic forecasts among Federal Open Market Committee officials, expecting that the unemployment rate “will remain in double digits through the end of the year.” The median Fed projection is for a 9.3% rate.
A principal reason for his pessimism is fear that some states have relaxed social distancing rules too soon and risk more intense spread of the coronavirus.
“In sum, given the death toll of the virus even with the economic lockdown, I see a substantial risk in reopening too fast and relaxing social distancing too much,” he said. “And even if it turns out that the response to the pandemic has been calibrated appropriately, the forecast from FOMC participants highlights the need for additional highly stimulative monetary policy, including the use of Federal Reserve emergency lending facilities.”
Like other Fed officials, Rosengren said he expects both the central bank and Congress will need to do more to help the economy.