Here’s what you need to know:
- Jerome Powell tells lawmakers a prolonged downturn could exacerbate inequality.
- Wall Street is lifted by retail sales and prospects for a Covid-19 treatment.
- Retail sales rebounded in May after April’s record drop.
- Interest rates could remain near zero for years, a Federal Reserve official says.
- Pork exports to China surged as meat processors warned of shortages.
Jerome Powell tells lawmakers a prolonged downturn could exacerbate inequality.
Jerome H. Powell, chair of the Federal Reserve, told lawmakers on Tuesday that the path to economic recovery remained uncertain and warned that a prolonged downturn could widen existing inequalities.
Some parts of the economy are seeing a modest rebound, but “levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery,” Mr. Powell said in testimony before the Senate Banking Committee.
Mr. Powell stressed that the damage could be long-lasting if the pandemic dragged on, particularly for lower-income workers.
“Low-income households have experienced, by far, the sharpest drop in employment, while job losses of African-Americans, Hispanics and women have been greater than that of other groups,” Mr. Powell said. “If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.”
Mr. Powell’s remarks, part of his two-day semiannual testimony before Senate and House lawmakers, come as communities across the United States continue to protest systemic racial inequality after a black man’s death at the hands of the police in Minneapolis in late May. Black Americans are often at a stark disadvantage in the labor market, and along with other minority groups, they have been hard hit by pandemic-era job losses.
The Fed chair told lawmakers that a full economic recovery was unlikely until the public was confident that the disease was contained.
Wall Street is lifted by retail sales and prospects for a Covid-19 treatment.
Wall Street’s roller coaster continued on Tuesday, as investors cheered a surprisingly strong rise in retail sales and a progress on a potential treatment for Covid-19, while shrugging off reports of new cases of the virus in the United States and stricter measures in China to clamp down on a fresh outbreak.
The S&P 500 rose nearly 2 percent, led by sectors that are sensitive to the short-term outlook for the economy such as industrial and energy stocks. Energy was the best-performing part of the market, as benchmark American crude rose more than 2 percent.
Hopes for a strong economic rebound were buoyed by a report showing retail sales jumped 18 percent in May, a stronger than expected bounce. It was the biggest jump on record and helped repair much of the damage from the previous month, which showed the largest-ever monthly collapse in retail sales.
“That allows the bulls to continue the narrative of a V-shaped recovery,” said Randy Watts, chief investment officer at the investment firm O’Neil Global Advisors.
Specialty retailers like Nordstrom, Kohl’s, Gap and L Brands rose sharply, as did home improvement retailers Home Depot and Lowe’s.
Investors were also heartened by news that scientists at the University of Oxford said on Tuesday that a 6,000-patient trial in Britain showed that a low-cost steroid, dexamethasone, could reduce deaths significantly for hospitalized Covid-19 patients. That optimism helped lift share prices for companies in industries especially exposed to the virus. Airlines, cruise lines and casino companies rose.
Other reports indicated that government support for the economy and markets, a crucial cornerstone of the stock market’s monthslong rally, is likely to continue.
Bloomberg News reported that the Trump administration was considering $1 trillion in infrastructure spending to help the economy rebound. Shares rose for infrastructure-related companies such as Caterpillar, the asphalt maker Vulcan Materials and Martin Marietta Materials, a producer of crushed stone.
Mr. Watts said he was skeptical that such a bill would become law before the presidential election in November. But the market found it reassuring.
“It sends a message to investors that there’s more fiscal stimulus coming,” he said.
Government support in the form of monetary policy from the Federal Reserve also seems set to continue. On Monday, the Federal Reserve’s announcement that it would start to buy corporate debt issued by individual firms gave stocks a lift.
The Fed chair, Jerome H. Powell, said in testimony to lawmakers on Tuesday that the corporate bond market had calmed considerably, but the central bank must follow through on its prior announcements.
“We just want to be there if things turn bad in the economy or if things go in a negative direction,” Mr. Powell said.
Retail sales rebounded in May after April’s record drop.
National retail sales rebounded in May as thousands of stores and restaurants reopened after lockdowns were lifted and federal stimulus checks and tax refunds fueled a burst of spending. But many of the stores and restaurants that welcomed back customers last month did so with fewer employees, reflecting a permanently altered retail landscape and an ominous sign for the economy as businesses try to recover from the coronavirus pandemic.
Total sales, which include purchases in stores and online as well as money spent at bars and restaurants, rose 17.7 percent in May from the previous month, the Commerce Department said Tuesday. That followed a 14.7 percent drop in April, the largest monthly decline in nearly three decades of record-keeping, and an 8.3 percent decline in March.
Economists had expected a bounce back from April, when widespread business closures drove retail sales to their lowest level since 2013.
The rise in May is the largest monthly surge on record — drawing a celebratory Twitter post from President Trump — but the retail industry is nowhere near back to normal. Overall sales were still down 8 percent from February. Some categories, like clothing, were down as much as 63 percent from a year ago.
Monthly Retail Sales
$500 billion
-7.9%
450
RECESSIONS
-21.8%
400
Change from
Feb. 2020 level
350
2006
2008
2010
2012
2014
2016
2018
2020
Monthly retail and food sales
$500 billion
-7.9%
450
RECESSIONS
-21.8%
400
Change from
Feb. 2020 level
350
’06
’08
’10
’12
’14
’16
’18
’20
Change in May
retail sales from:
Last
month
Last
year
Clothing
+188%
–63
%
Furniture/furnishings
–22
+90
Sporting goods/
hobbies/musical
instruments/books
+5%
+88
Electronics/appliances
+51
–30
Motor vehicles/parts
+44
–4
Food service/
drink places
+29
–39
Total retail sales
+18
–6
Miscellaneous
+14
–23
Gas stations
+13
–31
Building materials/
garden supplies
+11
+16
Nonstore retailers
+9
+31
General merch.
+6
n.c.
Food/drink stores
+2
+15
Health/personal care
n.c.
–10
Change in May
retail sales from:
Last month
Last year
Clothing
+
188
%
–
63
%
Furniture/furnishings
+
90
–
22
Sporting goods/hobbies/
musical instruments/books
+
88
+5
%
Electronics/appliances
+
51
–
30
Motor vehicles/parts
+
44
–
4
Food service/drink places
+
29
–
39
Total retail sales
+
18
–
6
Miscellaneous
+
14
–
23
Gas stations
+
13
–
31
Building materials/
garden supplies
+
11
+16
Nonstore retailers
+
9
+31
General merchandise
6
+
n.c.
Food/drink stores
+
2
+15
Health/personal care
n.c.
–
10
After more than a month of quarantine, May brought a tentative restart of brick-and-mortar retail across most of the country, with major chains like Macy’s and Gap reopening hundreds of stores. Some restaurants that had either closed or shifted their business to delivery and curbside pickup also reopened for in-person dining.
Driving some of the sales gains was warm weather, a sense of relief after weeks cooped up at home and optimism from some that the worst of the pandemic could be over. But they were also lifted by stimulus money — $1,200 per recipient, plus $500 per child — that will run out in the coming months, with no indications that Congress intends to pass another round of assistance.
“I think a lot of it is lockdown fatigue,” said Beth Ann Bovino, chief U.S. economist at S&P Global. “I would caution not to be fooled by this large gain. We still have a long way to go in repairing the economy.”
Interest rates could remain near zero for years, a Federal Reserve official says.
Interest rate increases could be on hold for an extended period as central bankers try to coax inflation back after a pandemic-spurred slowdown, a Federal Reserve official is expected to signal in a speech on Tuesday night.
Comments made by the Federal Reserve’s vice chair, Richard Clarida, in a prerecorded video to the Foreign Policy Association reinforce the central bank’s projections last week that suggested most policymakers expect to leave the federal funds rate at near-zero for years.
Inflation expectations, which help to guide future price gains, are “at risk of falling” too low for comfort, Mr. Clarida is expected to say, citing “the likely depth of this downturn” as the cause.
A weaker outlook for inflation could be bad news for the Fed, which aims for a 2 percent annual inflation rate. The Fed tries to encourage a little bit of inflation, which leaves central bankers with more room to cut interest rates and provides a buffer to guard against price declines that could damage the economy.
“To me, price stability requires that inflation expectations remain well anchored at our 2 percent objective,” Mr. Clarida will say in his remarks. “I will place a high priority on advocating policies that will be directed at achieving not only maximum employment, but also well-anchored inflation expectations consistent with our 2 percent objective.”
Pork exports to China surged as meat processors warned of shortages.
After slaughterhouses in several states were closed when thousands of workers tested positive and dozens died, the industry publicly lobbied the Trump administration to intervene with state and local officials or risk major meat shortages across American grocery stores.
Some retailers put limits on the amount of meat customers could buy, and the fast-food chain Wendy’s, at one point in May, ran low on hamburger.
Smithfield Foods was the first company to warn in April that the coronavirus pandemic was pushing the United States “perilously close to the edge in terms of our meat supply.” In April, Smithfield sent China 9,170 tons of pork, one of its highest monthly export totals to that market in the past three years. Tyson Foods, which said that “millions of pounds of meat will disappear” from the nation’s supply chain, exported 1,289 tons of pork to China, the most since January 2017.
In all, a record amount of the pork produced in the United States — 129,000 tons — was exported to China in April.
After decades of relatively stagnant pork consumption in the United States and a recent thaw in the trade war with China, this was the year that the pork exports were set to take off.
“The meat companies were saying the sky was falling, and it really wasn’t,” said Tony Corbo, a senior lobbyist at Food & Water Watch, a consumer and environmental watchdog group.
The industry stands by its warnings about shortages and the need to keep the plants operating. “As long as our nation’s harvest facilities continue to operate, not only do we have enough meat to feed Americans, but also to feed the world,” Smithfield said in a statement.
A strong rebound in oil demand is predicted, but airlines will lag.
The International Energy Agency forecast Tuesday that demand for oil, which has been slammed by the coronavirus pandemic, would rebound by a record amount next year but would still remain below 2019 levels largely because of what it called “an existential crisis” in commercial aviation.
Demand, especially among large oil importers like China and India, is already recovering rapidly from the April lows, said the group, which is based in Paris. The agency forecast that demand will increase by 5.7 million barrels a day in 2021, but even this growth would not be enough for consumption to recover from the drop of 8.2 million barrels a day expected for 2020.
Most of the lingering shortfall is likely to be in aviation fuel, the group said, as travel restrictions intended to prevent the spread of the virus weigh heavily on long-distance flying.
The agency said in its Monthly Oil Report, published Tuesday, that the aviation recovery could depend on the discovery and dissemination of a vaccine for the virus, which it said might require another 12 to 18 months.
Over all, the agency’s analysis seemed to support the recovery in oil prices from their April lows. In the agency’s view, demand for oil may exceed output by the third quarter of this year if deep cuts by the Organization of the Petroleum Exporting Countries and Russia and well shutdowns in countries like the United States persist.
24 Hour Fitness closes 100 gyms and files for bankruptcy protection.
The fitness chain 24 Hour Fitness filed for Chapter 11 bankruptcy protection on Monday, after the coronavirus pandemic forced its clubs to shut for nearly two months.
“Put simply, the Covid-19 pandemic upended the debtors’ operating model, leaving the debtors without a source of revenue to fund their operations,” the filing stated.
The national gym chain said in its bankruptcy filing that it had permanently closed 100 locations across 14 states. But the chain is expected to re-emerge: It has secured $250 million in funding to reopen some of its clubs, and expects a majority of its remaining 300 locations to be open by the end of June.
The pandemic has been particularly devastating to the gym industry. Also on Monday, Town Sports International said that it was considering bankruptcy because of revenue losses as a result of the shutdown. The company, which owns about 200 gyms including New York Sports Club and Boston Sports Club, said in a regulatory filing that the “scope and duration of the interruption to our operations has substantially reduced our cash flow.”
Catch up: Here’s what else is happening.
-
British employment data released Tuesday showed a sharp decline in the number of people on payrolls, but the overall unemployment rate for the February-March period remained steady, at 3.9 percent, as the country’s furlough program kept many people off the jobless rolls. Over 600,000 jobs were shed from payrolls from March to May, a 2.1 percent decline an the first drop after years of steady growth.
-
The Academy of Motion Picture Arts and Sciences said on Monday that it would push back the next Oscars ceremony to April 25 from Feb. 28, citing the coronavirus pandemic. The postponement, the fourth since the Academy Awards were introduced in 1929, could prompt the Golden Globes and other entertainment award shows to recalibrate.
Reporting was contributed by Jeanna Smialek, Sapna Maheshwari, Michael Corkery, Stanley Reed, Mohammed Hadi, Niraj Chokshi, David Yaffe-Bellany, Gillian Friedman, Carlos Tejada and Brooks Barnes.
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June 17, 2020 at 03:15AM
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Wall Street Rallies as Retail Sales Rebound by 17.7 Percent: Live Updates - The New York Times
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