The Washington PostDemocracy Dies in Darkness

The Finance 202: GOP leaders in no hurry to provide more coronavirus relief as cases surge

Analysis by
Staff writer
June 30, 2020 at 8:01 a.m. EDT

with Brent D. Griffiths

Whatever congressional Republicans and the Trump administration need to hear to rally around new economic relief measures as the U.S. sees surging coronavirus infections, they haven’t heard it yet.

Evidence keeps mounting that a wobbly economic recovery is poised to lose its footing as states and businesses ratchet back reopening plans in the face of spiking case counts. But the party remains divided, both on Capitol Hill and within the White House, about the necessity of pumping out more federal money to shore it up.

And GOP leaders are evincing little urgency about acting in the immediate term, with Senate Republicans and administration officials “eyeing late July as the time frame for putting together another coronavirus bill,” Erica Werner reports.

A spokesman for Senate Majority Leader Mitch McConnell (R-Ky.) highlighted comments he made back home Friday indicating Republicans would revisit the matter next month, “and if there’s a final rescue package, that’s when it will develop.” As Erica notes, McConnell’s position “has been essentially unchanged since April.”

But conditions are shifting rapidly. Signs the recovery is hitting a new skid abound. 

Business bankruptcies are surging. GNC, Chesapeake Energy, Chuck E. Cheese, and Cirque du Soleil are the latest big names filing for Chapter 11 protection just in the last several days. They join a roster of more than 100 other companies in the first half of the year, the most since the Great Recession, according to Bloomberg Law.

By one estimate, that wave is set to build. Edward Altman, a professor emeritus at NYU’S Stern School who developed a bankruptcy forecasting model, “estimated that this year will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis,” the New York Times’s Mary Williams Walsh recently wrote. (On the other hand, the Wall Street Journal's Miriam Gottfried writes this morning, the crush of corporate failures could have been more severe, an outcome the Federal Reserve's unprecedented market interventions helped head off.)

No surprise, then, that business executive confidence is suffering. The nation’s top executives are planning sharp cuts to hiring and capital investments this year, given their assessment of the ongoing economic damage, according to the Business Roundtable’s latest quarterly survey of sentiment among its CEO members. And while most of them see a return to normal levels of activity for their own businesses next year, 27 percent don’t expect that to happen until at least 2022, the survey found.

From the Business Roundtable: 

The findings roughly mirrored those of a recent Deloitte poll of chief financial officers for 118 large North American companies: Just over half said they expect to return to normal operations next year, and 17 percent projected to reach that milestone in 2022 or later — assessments that reflect deteriorating confidence over the last three months.

Meanwhile, the number of Americans who missed mortgage payments rose to 4.3 milion in May. That more than doubled the figure from the end of March and marked a high not seen since 2011, according to mortgage data company Black Knight (and contracts to buy previously owned homes remained below their February level in May though they rebounded sharply). And last week marked the 14th in a row that initial unemployment claims clocked in above 1 million, as 1.48 million new people sought benefits.

Investment bank Jeffries said its measure of economic activity, after showing signs of improvement, is now “running out of steam.” Per Heather Long:

States are reversing their reopenings as cases mount.

Economists, investors and business leaders who until recently held out hope for a V-shaped recovery largely agreed pulling it off left little margin for error. That chain of events began with the spread of the coronavirus continuing its steady decline, so states could lift restrictions on businesses and consumers would feel safe enough to return to them. 

The resurgence of infections has all but dashed that possibility, as states hosting new hotbeds of the virus are halting plans to reopen or reimposing restrictions, with more likely to follow. Arizona is closing bars, gyms, movie theaters and water parks for 30 days at least, an order that went into effect Monday. Bars in seven California counties including Los Angeles are closing again, as are L.A. beaches — as well as bars in Texas and Florida. Washington state is halting reopening plans in eight counties. And New York Gov. Andrew M. Cuomo (D) on Monday said he could postpone plans to reopen indoor restaurant dining, and New Jersey Gov. Phil Murphy (D) announced he was reversing plans to allow that activity to resume later this week.

“Recent trends could be pressuring other state governors to slow down the pace of their state's reopening even if they have not stated so explicitly,” Goldman Sachs analysts wrote in a Sunday note.

The economic outlook is darkening as emergency programs are set to expire in the coming weeks.

Spiking infections, tightened restrictions and the ongoing crisis from the lockdowns in place aren’t the only threats to the recovery. Indeed, it is also poised to get squeezed from another direction in the weeks ahead, as federal bailout measures begin to expire.

As we noted here earlier this month, “Americans have either spent or socked away the $1,200 stimulus checks they received as part of the $2.2 trillion Cares Act. A long list of state and local governments have to wrap work on balanced budgets by the end of this month, meaning many will need to fire workers and curtail spending without relief from Washington. Tax payments the IRS deferred in April are due July 15. And the $600 federal bonus in weekly unemployment benefits expires at the end of next month.” Plus, the Paycheck Protection Program will stop accepting new applications just before midnight tonight.

Altogether, if Congress doesn’t act, “about $1 trillion in emergency federal aid used to stabilize the economy will disappear in the next quarter,” Erica and Jeff Stein have reported.

Senate Republicans are far from a consensus on the next step, with some favoring more relief and others raising concerns about the deficit impact of the $3 trillion they have already approved in emergency spending. But as Erica notes, “partisanship has increased on various fronts at the Capitol” in the three months since lawmakers last reached agreement on a major relief measure, the $2.2 trillion Cares Act.

And some senior White House advisers continue putting the happiest possible spin the situation facing the country:

With the exception of aid to state and local governments, nothing from Kudlow's priority list matches that of Democrats:

And Stephen Moore, an outside adviser to the administration, is predicting a big, partisan fight over extending unemployment benefits:

Former Obama Treasury economist Ernie Tedeschi suggests such a cut would be devastating for millions: 

Amid the back and forth, Federal Reserve Chairman Jerome Powell will reemphasize a point he has made for weeks when he testifies before the House Financial Services Committee today: A robust recovery remains far from assured. He will cite recent economic momentum while highlighting looming challenges.

“Output and employment remain far below their pre-pandemic levels,” Powell will say, according to his prepared remarks. “The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus. A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities.”

Market movers

Stocks rally. 

A surge in Boeing shares helped lead the way. “Wall Street stocks closed higher on Monday and the S&P 500 was poised to clinch its biggest quarterly percentage gain since 1998 as investors hoped for a stimulus-backed economic rebound," Reuters's Chuck Mikolajczak reports. Boeing shares “jumped more than 14% after a 737 MAX took off on Monday from a Seattle-area airport on the first day of certification flight testing with U.S. Federal Aviation Administration and company test pilots, a crucial moment in Boeing’s worst-ever crisis.”

“A spike in virus infections in Southern and Western states last week sent the S&P 500 down nearly 3%, but the threat of a deeper-than-feared recession has led investors to expect more stimulus measures from the Federal Reserve or Congress… The Dow Jones Industrial Average rose 580.25 points, or 2.32%, to 25,595.8, the S&P 500 gained 44.19 points, or 1.47%, to 3,053.24 and the Nasdaq Composite added 116.93 points, or 1.2%, to 9,874.15.”

  • Futures are down. “U.S. stock futures drifted down Tuesday as investors gauged the risks posed by fresh lockdowns to the economic recovery and rebalanced portfolios on the final day of the second quarter while locking in gains,” WSJ's Anna Isaac reports. “Futures tied to the S&P 500 ticked 0.2% lower. That still leaves the gauge for U.S. stocks on track to end the quarter having erased most of its losses from the first three months of the year.”
  • Investors are stumped about where the market is headed in coming months. “When it comes to the future of the stock market, investors’ predictions are all over the map,” Bloomberg's Amena Saad and Sarah Ponczek write. “When asked where the S&P 500 Index would end the year, a fifth of respondents to a survey conducted by DataTrek Research said the benchmark will close out 2020 up more than 10% from current levels. That’s roughly the same number who predicted the index will finish down more than 10%. ‘Every option from “really bad” (down +10% from here) to “really good” (+10%) got basically the same number of votes,’ Nicholas Colas, DataTrek’s co-founder, wrote in an email."

Coronavirus fallout

Fed eyes buying corporate debt of massive companies, including U.S subsidiaries of foreign firms.

The central bank's novel corporate debt-buying plan is stirring debate. One question is "whether its efforts are going to the neediest slices of the economy,” Rachel Siegel reports.“The Fed on Sunday disclosed its index of nearly 800 companies, including Verizon, Comcast and U.S. divisions of Toyota, Volkswagen, Daimler and BMW. The index essentially represents a snapshot used to guide the Fed’s corporate debt purchases — and widens the scope of questions the Fed could face as it tries to prevent a broader economic collapse. 

"The central bank has said it launched the corporate debt program to support the markets and, in turn, companies in need of cash that are also vying to keep workers on the payrolls. But as with much of the Fed’s recession response, the central bank has never bought corporate debt like this before, and it’s unclear what the implications of its actions will be.”

More from the U.S.:
  • At least 2,575,000 cases have been reported; at least 124,000 have died
  • Weekly jobless claims can be inflated: “Eight states and Puerto Rico have reported Pandemic Unemployment Assistance claims higher than those for regular state programs, according to figures released Thursday. On the surface, this suggests there are many more self-employed and gig workers losing their jobs. In reality, states contacted by Bloomberg News explained that the totals reflect backlogged claims from prior weeks finally making their way through the system. In addition, with each retroactive week counted as a separate claim, one person can account for multiple claims in the tally,” Bloomberg's Katia Dmitrieva, Maeve Sheehey, and Reade Pickert report.
  • House Democrats pass Obamacare expansion: “The House passed the first significant expansion of the Affordable Care Act since its birth a decade ago, providing Democrats a high-wattage platform to castigate [Trump] for his efforts to overturn the landmark law during a pandemic and an election year,” Amy Goldstein reports.
  • Nearly 150 University of Georgia workers test positive: “Georgia is witnessing a steep rise in new coronavirus cases, with the fastest growth occurring among people between the ages of 18 to 29, according to the AJC. People under 30 make up the largest share of the state’s cases, and, since April, the median age of those testing positive has fallen from the mid-50s to the mid-30s,” Antonia Farzan reports.
From the corporate front: 
  • Gilead prices COVID-19 drug remdesivir at $2,340 per patient in developed nations: “Soon after the announcement, the Trump administration said it had secured nearly all of the company’s supply of the drug for use in U.S. hospitals through September, with a contract for 500,000 treatment courses, which it will make available to hospitals at Gilead’s price. Other developed countries will pay 25 percent less than the United States, a discount Gilead said reflects a need to make the drug as widely available as possible throughout the world,” Hannah Denham, Yasmeen Abutaleb and Christopher Rowland report.
  • AMC pushes back reopening to July 30: “Previously, the company had planned on starting to reopen theaters in mid-July in time for the releases of ‘Tenet' and ‘Mulan,' However, late last week both Warner Bros. and Disney pushed their releases into August …,” CNBC's Sarah Whitten reports.
  • Cirque du Soleil files for bankruptcy protection: “The Montreal-based entertainment company, which runs six shows in Las Vegas, has struggled to keep its business running amid coronavirus restrictions that started in March, forcing it to lay off about 95 percent of its workforce and temporarily suspend its shows,” Reuters's Nivedita Balu, Praveen Paramasivam and Jessica DiNapoli report.
Around the world:
  • New Zealand cancels plans to hold Asia-Pacific Economic Cooperation summit: “The gathering of world leaders from nearly two dozen nations, including the United States, wasn’t slated to take place until November 2021. But New Zealand’s foreign affairs minister, Winston Peters, said that the event’s logistics require ‘a large volume of high-level visitors’ entering the country as soon as late 2020 for planning and security purposes,” Antonia Farzan reports.
  • Lockdowns return for some Australians: “The Australian state of Victoria has reimposed lockdown measures in 10 suburbs of Melbourne that appear to be at the center of a new outbreak,” Antonia Farzan reports.

Trump tracker

The exodus from Trump's economic team continues.

A top Treasury official is expected to quit this week: “Bimal Patel, a top deputy to Treasury Secretary Steven Mnuchin, is departing the administration … Patel, who will leave at the end of this week, has played a key role in overseeing the administration’s $500 billion small-business rescue program and helps lead Treasury’s efforts related to the banking system,” Jeff Stein reports.

“He is the third senior economic adviser in the past week to signal plans to leave the Trump administration, and others have left their roles in the past month. Patel was sworn in to the Treasury post in June 2019.”

When superpowers collide

China may soon let its largest banks square off against Wall Street titans.

Amid trade tensions big U.S. banks have continued to ramp up their own investments: “China is getting ready to allow its largest commercial banks to enter into investment banking and bond and stock deal-making as soon as this year, paving the way for them to take on Wall Street rivals as competition heats up in the nation’s $21 trillion capital market,” Bloomberg reports.

“Regulators are discussing plans to grant such licenses initially to some of the nation’s biggest lenders, including Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., on a pilot basis … The potential entry of Chinese banks, which have $43 trillion in assets, into deal making and trading would increase competition for global firms including Goldman Sachs Group Inc. and Morgan Stanley, which have been expanding their operations in China and can this year petition for full control of local securities firms."

A remote corner of Idaho has become the best hope for the U.S. challenge to Huawei (Jeanne Whalen)

The regulators

SCOTUS makes it easier for a president to fire CFPB head.

But the court did not strike down the agency entirely: “In a divided decision, the court said the agency’s structure violates the Constitution’s separation-of-powers design,” Ann E. Marimow and Renae Merle report.

“Its single-director configuration concentrates ‘significant governmental power in the hands of a single individual accountable to no one,’ wrote Chief Justice John G. Roberts Jr., who was joined in part by the court’s other conservative justices. ‘. . . With no colleagues to persuade, and no boss or electorate looking over her shoulder, the Director may dictate and enforce policy for a vital segment of the economy affecting millions of Americans.’”

  • Sen. Elizabeth Warren (D-Mass.), who pushed for the agency as a Harvard professor, hailed the fact her brainchild is here to stay: But she slammed justices for undermining the director's power.

Campaign 2020

Biden tells donors he'll axe most of Trump's tax cuts.

He conceded his wealthy patrons may not like that: “Biden’s warning to his backers came as the candidate laid out an ambitious suite of policy goals during a virtual campaign fundraiser on Monday. The event raised at least $2 million,” CNBC's Kevin Breuninger reports.

“'I’m going to get rid of the bulk of Trump’s $2 trillion tax cut,' Biden said, ‘and a lot of you may not like that but I’m going to close loopholes like capital gains and stepped up basis.’ [He] also said he would raise the corporate tax rate to 28 percent, which he said would raise an estimated $1.3 trillion over the next decade. The Trump tax cuts had shrunk corporate taxes to 21 percent from 35 percent."

Pocket change

Collapse in energy prices wasn't the only thing that sunk Chesapeake.

The fracking giant made a number of questionable spending decisions: “CEO Robert D. ‘Doug’ Lawler found in examining the company’s books a $110 million bill for two parking garages … That was part of about $30 billion in spending above cash flow that happened from 2010-12, while the late Aubrey McClendon was CEO and prior to Lawler taking over in 2013,” CNBC's Jeff Cox reports.

“Other revelations include a wine collection in a cave hidden behind a broom closet in the Chesapeake office. Extravagances further included a season ticket package to the NBA’s Oklahoma City Thunder that was the biggest in the league and a lavish campus that was modeled after Duke University, complete with bee keepers, botox treatments and chaplains for employees.”

Lululemon to acquire at-home fitness company Mirror for $500 million: “Lululemon shares were up almost 4% in after-hours trading,” CNBC's Lauren Thomas reports.

“Mirror is seen as a competitor to other at-home workout equipment makers including Peloton. Many former gym users have flocked to these devices during the pandemic, with fitness studios forced shut to try to curb the spread of covid-19.”

Chart topper

Via Charles Schwab & Co. chief investment strategist Liz Ann Sonders:

Daybook

Today:

Wednesday:

Thursday:

  • The Labor Department releases the June jobs report

Friday:

  • The markets are closed to observe Independence Day

The funnies

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A cartoon by @akeemteam. #NewYorkerCartoons

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Bull session

The BET Awards celebrated its 20th anniversary with a virtual show on June 28. Here are some highlights. (Video: The Washington Post)