Here’s what you need to know:
- The Fed chair says the central bank crossed ‘red lines’ to support growth.
- Government checks caused a surge in April incomes, but spending still slumped.
- Google rescinded offers to thousands of ready-to-start contractors.
- Stocks waver as U.S.-China tensions rise.
- Dollar stores see sales surge during the pandemic.
The Fed chair says the central bank crossed ‘red lines’ to support growth.
Jerome H. Powell, the chair of the Federal Reserve, said that central bankers saw the need to use their tools “to their fullest extent” as coronavirus lockdowns shuttered economies around the world and caused U.S. unemployment to soar.
“We felt called to do what we could,” Mr. Powell said on Friday, during a Princeton University webinar. “We crossed a lot of red lines that had not been crossed before, and I’m very comfortable with — this is that situation in which you do that, and you figure it out afterward.”
The Fed has taken a variety of actions to support the economy, including cutting interest rates to near-zero, rolling out unlimited bond purchases, and introducing a variety of emergency lending measures to keep credit flowing to businesses and state governments.
The central bank’s efforts have come at a time of dire economic need. Economists are bracing for a deep plunge in economic output in the second quarter, which runs from April through June, and most predict only a gradual recovery over the remainder of the year. It could be months or years before output climbs back to its pre-crisis level and the unemployment rate falls to the 50-year lows that prevailed before the coronavirus came to the United States.
More than 40 million people, the equivalent of one out of every four American workers, have filed for unemployment benefits since mid-March, based on data released this week. A report next Friday is expected to show that the unemployment rate jumped to 19.5 percent in May, based on the median estimate in a Bloomberg survey of economists.
Government checks caused a surge in April incomes, but spending still slumped.
Government infusions to Americans’ bank accounts led to a surge in personal income in April, the Commerce Department reported Friday, but the coronavirus-related economic shutdown still caused a steep decline in consumer spending.
Personal income rose overall by $1.97 trillion, a gain of 10.5 percent in March and 11.7 percent from the previous April. The drop-off in wages was offset by nearly $3 trillion in government transfer payments. Of that, $360 billion was unemployment benefits and $2.6 trillion was “other” — reflecting the checks of up to $1,200 a person that the federal government sent to most households.
That extra cash was not translated, at least immediately, into spending on consumer goods, which was down 13.6 percent from March. The decline was spread across all major categories — durable goods, nondurable goods and services.
“It’s not every year you get these kinds of crazy swings,” said Greg Daco, chief U.S. economist at Oxford Economics. “It requires a bit of coolheadedness to understand what is transitory and what is permanent.”
Government payments, which pumped up personal income, he said, “are a one-time shot. If you take these benefits out, then you are left with a massive loss of income.”
On the other hand, lingering fear is likely to restrain spending on social activities and discretionary for a while. There are signs that spending had begun to rebound slightly in May, Mr. Daco added, but there’s a very long way to go before activity returns to pre-crisis levels.
“You might see strong growth numbers on spending but we’re coming out of a deep hole,” he said.
Google rescinded offers to thousands of ready-to-start contractors.
Google has rescinded offers to more than 2,000 people who had agreed to work at the company as temporary and contract workers.
Google employs more than 130,000 contractors and temp workers, a shadow work force that outnumbers its 123,000 full-time employees. Google’s full-time staff are rewarded with high salaries and generous perks, but temps and contractors often receive less pay, fewer benefits and do not have the same protections, even though they work alongside full timers.
Many of the contract and temp candidates who had agreed to work at Google before the pandemic took hold in the United States were let go without any severance or financial compensation. This came after weeks of uncertainty as Google repeatedly postponed their start dates during which time they were not paid by Google or the staffing agencies through which they were recruited.
Some of the would-be contractors left stable, full-time jobs once they received an employment offer at Google and are now searching for work in a difficult labor market. Some, who are Americans, said the rescinded offers have complicated and, in some cases, delayed their ability to receive unemployment benefits because they left their last jobs voluntarily, according to several of the workers facing this dilemma.
In mid-April, a company spokeswoman said that Google intended to bring on the people who it had already hired but who had not started.
But this did not seem to apply to contractors or temp workers for Google and Alphabet, which has a market capitalization of near $1 trillion dollars. It made $6.8 billion in profit in the first three months of 2020, despite what it called “a significant and sudden slowdown” in advertising.
“If these people were promised jobs at Alphabet, which is worth a trillion dollars, it seems like the company has a responsibility to take them on,” said Ben Gwin, who works as a data analyst in a Google office for HCL America, a contracting agency. “It’s not like Google can’t afford it.”
Stocks waver as U.S.-China tensions rise.
Stocks were mixed on Friday, following losses on Wall Street the day before, as tensions worsened between Washington and Beijing.
The S&P 500 fell about half a percent, while the Nasdaq composite turned positive. Shares in Europe were lower after a mixed day in Asia.
Investors were bracing for President Trump to unveil measures aimed at China. The Trump administration has criticized Beijing’s recent move to strengthen its authority over Hong Kong, a semiautonomous Chinese city that enjoys special trade and financial relations with the United States. Any sharp move by the administration risks inviting retaliation from Beijing, worsening tensions between the world’s two biggest single economies.
Mr. Trump had said on Thursday that he would hold a news conference on Friday to discuss China. It was scheduled for 2 p.m. in Washington but few details were available about what he would address. In addition to rising concerns over Hong Kong, the Trump administration has been critical of China’s response to the coronavirus outbreak as the president has sought to divert blame for the toll it has taken on the United States.
Tension between Washington and Beijing, which are currently negotiating a trade deal, has been one of the few factors that has managed to deter bullish investors who have looked past the coronavirus pandemic’s immense human and economic toll, and instead have focused on signs of a recovery as they bid stocks higher.
Investors were also parsing mixed retail sales data from Europe, as well as business confidence figures from Britain.
Dollar stores see sales surge during the pandemic.
America’s largest dollar-store chains reported their latest quarterly results yesterday, blowing away expectations for sales and profits. These discounters generally thrive during periods of high unemployment and weak economic growth, and the coronavirus crisis is no exception.
“We do very good in good times and we do fabulous in bad times,” said Todd J. Vasos, the chief executive of Dollar General. His company reported a 28 percent rise in sales in its latest quarter.
Dollar Tree reported an 8 percent rise in revenue over the same period. “In 2008, folks lost jobs, too, and they needed us and they found us,” said Gary M. Philbin, the chain’s chief executive.
For the year, both companies’ stock prices are up nearly 20 percent, easily outperforming the S&P 500 and nearly doubling the rises recorded by Walmart and Target.
Dollar General said it had hired more than 50,000 people since mid-March, and Dollar Tree hired more than 25,000 over a similar stretch. Both are paying special bonuses for workers during the pandemic; Dollar General said these totaled $60 million in its latest quarter. Still, working conditions at these stores have faced criticism, before and since the coronavirus outbreak.
Renault says it will slash jobs and production.
The French carmaker Renault said on Friday that it would cut nearly 15,000 jobs worldwide and drastically reduce production as it tries to deal with “the major crisis facing the automotive industry.”
About a third of the job cuts would be in France, Renault said. The company, which is partly owned by the French government, indicated it is likely to close several factories while it cuts the number of cars it produces annually to 3.3 million, from 4 million. Renault will also pull out of China, where it has failed to get much traction.
Renault has been hit hard by the pandemic. Renault sales in the European Union, its most important market, fell almost 80 percent in April, when dealerships were closed and most buyers were not leaving their homes.
Can the dollar keep this up?
The U.S. dollar has gained about 7 percent this year against a basket of major currencies. But with interest rates at rock-bottom levels, the Fed’s printing presses revving up and the government borrowing enormous sums for stimulus spending, today’s DealBook newsletter asks: Can it retain its haven status?
A recent research note by Gregory Daco at Oxford Economics found that since 1973, the dollar has appreciated an average of 6 percent in the past six recessions, in line with its performance during the current downturn. Mr. Daco expects the dollar to remain strong this year, but not for the usual reasons.
Unlike in past recessions, when investors flocked to the safety of Treasury bonds, foreign investors dumped U.S. government debt at a record rate in March, which would normally push the dollar down. But since the Fed flooded the markets with stimulus, the U.S. stock market has, unusually, become a “safe refuge,” Mr. Daco writes, propelled by tech stocks whose businesses are benefiting from stay-at-home orders.
Airlines prepare for a long recovery.
American Airlines and Delta Air Lines are offering buyouts to employees as they prepare for a rebound in demand for air travel that most industry expect will take years to materialize.
“Delta will have to be a smaller airline as we adjust to reduced demand and the need for distancing and safety during travel,” Delta’s chief executive, Ed Bastian, told employees in a memo on Wednesday. “A smaller Delta unfortunately means fewer people will be required.”
Delta is offering two programs — an early retirement option and a general buyout package — to most employees except for pilots, whose union is still in talks with management, Mr. Bastian said. The email did not say how much of its work force the airline was seeking to pare.
The American program, also announced on Wednesday, applies to management and support staff, which the airline hopes to cut by about 30 percent, or about 5,000 workers.
The British low-price airline easyJet said on Thursday that it planned to reduce staff by up to 30 percent and that it expected to fly in the July-September period at nearly 30 percent of the capacity a year earlier. When flights restart, staff and passengers will be required to wear masks and, at least initially, no onboard food service will be offered, the company said.
Going into the crisis, American had 130,000 employees and Delta had 90,000; about 40,000 workers at each have taken voluntary leave or early retirement. Most airline jobs are protected into the fall as a condition of the CARES Act, which provided $50 billion to passenger airlines, half of it earmarked to pay employees through September.
Catch up: Here’s what else is happening.
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Nordstrom, the top-performing department store in the United States, said on Thursday that its net sales fell 40 percent to $2 billion in the first quarter, and that it posted a net loss of $521 million. Digital sales accounted for more than half of its total net sales during the quarter. The retailer closed stores on March 17 and started reopening in early May. It said it now has about 40 percent of its locations open.
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Costco Wholesale said on Thursday that its net sales rose 7.3 percent to $36.5 billion in its quarter ending May 10 and that it posted a net profit of $838 million, as the pandemic prompted customers to stock up on goods. The warehouse chain, which has more than 500 U.S. locations, said its income took a hit from a $283 million pretax charge “from incremental wage and sanitation costs related to Covid-19.”
Reporting was contributed by Nelson D. Schwartz, Ben Casselman, Niraj Chokshi, Daisuke Wakabayashi, Jason Karaian, Jeanna Smialek, Kate Conger, Jack Ewing, Mike Isaac, Maggie Haberman, Kevin McKenna, Mohammed Hadi and Carlos Tejada.
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May 29, 2020 at 11:20PM
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