Daily Business Briefing
July 19, 2021, 6:35 p.m. ET
July 19, 2021, 6:35 p.m. ET
The pandemic recession is officially over.
In fact, it has been over for more than a year.
The National Bureau of Economic Research, the semiofficial arbiter of U.S. business cycles, said Monday that the recession had ended in April 2020, after a mere two months. That makes it by far the shortest contraction on record — so short that by June 2020, when the bureau officially determined that a recession had begun, it had been over for two months. (The previous shortest recession on record, in 1980, lasted six months.)
But while the 2020 recession was short, it was unusually severe. Employers cut 22 million jobs in March and April, and the unemployment rate hit 14.8 percent, the worst level since the Great Depression. Gross domestic product fell by more than 10 percent.
The end of the recession doesn’t mean that the economy has healed. The United States has nearly seven million fewer jobs than before the pandemic, and while gross domestic product has most likely returned to its prepandemic level, thousands of businesses have failed, and millions of individuals are still struggling to get back on their feet.
To economists, however, recessions aren’t simply periods of financial hardship. They are periods of economic contraction, as measured by employment, income, production and other indicators. Once growth resumes, the recession is over, no matter how deep a hole remains. The recession that accompanied the 2008 financial crisis, for example, ended in June 2009 — four months before the unemployment rate hit its peak, and years before many Americans began to experience a meaningful rebound.
The unusual nature of the pandemic-induced economic collapse challenged the traditional concept of a “recession.” The National Bureau of Economic Research defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Taken literally, the latest downturn fails that test — the recession lasted mere weeks. But the bureau’s Business Cycle Dating Committee decided that the contraction should count nonetheless.
“The committee concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warranted the designation of this episode as a recession, even though the downturn was briefer than earlier contractions,” the committee said in a statement.
Top U.S. financial regulators met on Monday to discuss stablecoins, asset-backed digital currencies that are exploding in popularity so quickly that the government is struggling to keep up — and which economic officials increasingly see as a risk to financial stability.
Stablecoins are cryptocurrencies that derive their value from an underlying currency or basket of assets, and they have long been a point of unique concern. When news broke in 2018 and 2019 that Facebook was looking into creating a stablecoin, the Federal Reserve and other regulators took note, worried that the project could gain scale rapidly. Pressure to develop a framework for overseeing them has ramped up even more recently, as prominent stablecoins including Tether and Binance have exploded in popularity.
The Treasury Department announced on Friday that Secretary Janet L. Yellen would convene a meeting of the President’s Working Group on Financial Markets to discuss regulators’ work on stablecoins. That group includes Jerome H. Powell, the chair of the Federal Reserve, and the leaders of the Securities and Exchange Commission and the Commodity Futures Trading Commission. Monday’s meeting was expanded to include the heads of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
Meeting participants “discussed the rapid growth of stablecoins, potential uses of stablecoins as a means of payment, and potential risks to end-users, the financial system, and national security,” according to a Treasury statement released after the meeting on Monday. Ms. Yellen “underscored the need to act quickly to ensure there is an appropriate U.S. regulatory framework in place.”
Mr. Powell has been particularly outspoken about the need for better oversight of stablecoins and said repeatedly during two congressional appearances last week that they are inadequately regulated.
“If we’re going to have something that looks just like a money-market fund, or a bank deposit, a narrow bank, and it’s growing really fast, we really ought to have appropriate regulation — and today we don’t,” he said during testimony before the Senate Banking Committee.
Eric Rosengren, the president of the Federal Reserve Bank of Boston, has similarly warned about Tether, arguing that it relies on underlying financial assets that could experience investor runs in times of trouble. New York’s attorney general said earlier this year that Tether had misled investors by claiming to be fully backed by U.S. dollars at all times.
The Treasury said that the working group expects to issue recommendations in the coming months for stablecoins. The group has previously warned stablecoin operators that they need to maintain adequate cash reserves to back their offerings.
The Fed could also try to elbow aside digital offerings by offering its own alternative.
The central bank is looking into a digital currency offering, which would probably function much like the digital cash you spend when you swipe your debit card. But where that debit card money ties back to the commercial banking system, the central bank digital currency would have direct backing from the Fed, just like physical cash does.
Mr. Powell told lawmakers last week that obviating the need for stable coins could be one of the stronger arguments for a digital dollar.
But Mr. Powell remains undecided on whether a central bank digital currency makes sense, he told lawmakers. The Fed is planning to publish a comprehensive report on the possibility of a digital dollar, probably around September.
LONDON — After 16 long months, the British government lifted nearly all its pandemic restrictions across England on Monday, including its guidance to work from home.
But rather than a stampede of workers returning to their offices, employees of many large companies continued to trickle in as they have for weeks. By 10 a.m. on Monday, travel on the London Underground was 38 percent of normal demand, no higher than the same period last week, and the vast majority of people were still wearing masks. By 3 p.m., foot traffic in central London was 10 percent lower than last week, according to data from Springboard.
Many companies approached the reopening on so-called Freedom Day cautiously, as the nation reported 40,000 new coronavirus cases in a population that is about two-thirds fully vaccinated. And businesses across industries suffered staff shortages because of a “pingdemic,” in which hundreds of thousands of people are being pinged by the National Health Service’s track-and-trace app and told to self-isolate because they were near someone who tested positive.
The City of London, the capital’s main financial district, has been emerging slowly from its lockdown slumber. On Monday, coffee shops said there was no discernible increase in customers, and some lunch cafes were still closed. Opposite a central train station, Association Coffee’s customer traffic reflected the local office occupancy — some 30 percent of prepandemic levels. Across the street, a suit shop and sushi lunch spot have shut their doors for good.
Freedom Day was also remarkably warm, further discouraging would-be office workers from a sweaty commute.
Robert Cane, an employee at a shoe repair shop in the City, said he was not sure business would pick up until next year, if ever. Last week, he had barely more than a hundred customers. Noting that some businesses have reduced their office space over the past year, he said, “I don’t think it’s ever going back to normal here.”
Most large employers are keeping voluntary return-to-office plans, and many require mask-wearing away from desks and are limiting office capacity to prevent crowding. The government has said there needs to be “personal and corporate responsibility” over some measures with a gradual return to the office. For example, the Bank of England is asking staff to return only once a week starting in September. But there was some loosening of policies on Monday inside the central bank — restrictions on the use of elevators were eased, and extra spaces between desks will be removed.
Among other employers:
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At the London offices of JPMorgan Chase, where 12,000 employees usually work, masks were still needed to be worn in communal spaces and meeting rooms, and social-distancing indicators were still marked around the buildings. Capacity is capped at 50 percent, but recently not much more than 30 percent of workers have been coming to the office. The biggest change on Monday was that employees from any team were allowed to return to their office if they wished. Over the summer, the bank intends to gradually raise the capacity limit.
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At Goldman Sachs, which has its 826,000-square-foot European headquarters in the City of London, health and safety measures stayed the same. Workers must wear a mask when not sitting at their desk and continue to take part in the on-site testing program. Social distancing will reduce the office’s normal capacity. Recently, an average of 30 percent to 40 percent of the bank’s 6,500 employees have been in the office.
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Goldman Sachs is also monitoring vaccination rates from voluntary surveys of its staff, which has shown a “significant upward trajectory” since June, according to an internal memo. “We will continue to monitor local case rates and public health safety guidance, and will update our in-office protocols as and when appropriate,” the memo, sent by Richard Gnodde, the chief executive of Goldman Sachs International.
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In the central London offices of Blackstone, the investment giant, employees must still adhere to mask-wearing and social-distancing guidelines, though disclosing their vaccination status remained optional. But working from the office was voluntary, and the firm has not yet set a date for a mandatory return.
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SoftBank Investment Advisers, the London arm of the Japanese technology giant SoftBank that oversees its Vision Funds, has kept in-office attendance voluntary. Employees must reserve desks in advance and observe social distancing guidelines; masks are optional but recommended.
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Employees at the London headquarters of Unilever, the consumer products conglomerate, must wear masks while walking around the building, but not while at their desks. Social-distancing guidelines remain in place, effectively capping how many people can be at work.
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McKinsey & Company is beginning to ease restrictions, and in parts of the London office, masks will be required only in busy areas, the one-way system will be removed and the seating in meeting rooms will not be reduced. Elsewhere, restrictions will stay the same, and there is still no requirement to return to the office.
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Dentons, a large law firm in the City, recently introducing a flexible working policy so its employees can choose whether to work in the office. For those in the office, little has changed: Staff members are restricted to the floor they are working from; masks don’t need to be worn on that floor but are still needed in and out of the building and in the elevators; and social distancing is still encouraged.
Even Prime Minister Boris Johnson worked from home on Freedom Day, as he, too, has been pinged by the National Health Service to self-isolate for 10 days. From his isolation, he announced on Monday that by the end of September, it will be mandatory to show proof of vaccination to enter nightclubs and other places with large crowds.
Michael J. de la Merced contributed reporting.
Toyota said on Monday that it had decided against running Olympics-themed television advertisements in Japan, a symbolic vote of no confidence from one of the country’s most influential companies just days before the Games begin amid a national state of emergency.
The Japanese public has expressed strong opposition to the Games — delayed for a year because of the pandemic — with many worrying that the influx of visitors from around the world could turn it into a Covid-19 superspreader event, undoing national efforts to keep coronavirus levels low.
Toyota will refrain from airing television ads at home during the Games, and its chief executive, Akio Toyoda, will not attend the opening ceremony, a company spokesman told local news media during an online news conference.
“Various aspects of this Olympics aren’t accepted by the public,” said the spokesman, Jun Nagata, according to the business daily Yomiuri Shimbun.
The ads will still be shown in other markets, Toyota Motor North America said in a statement. “In the U.S., the campaign has already been shown nationally and will continue to be shown as planned with our media partners during the Olympic and Paralympic Games Tokyo 2020,” the statement said.
The company had prepared ads for the event but will not air them because of concerns that emphasizing its connection to the Games could create a backlash, said a person familiar with the company’s thinking, who spoke on condition of anonymity because he was not authorized to speak publicly.
Toyota will continue its commitments to supporting Olympic athletes and providing transportation services during the Games, a spokesman said.
The company’s decision is “a big body blow to the Olympics,” said David Droga, the founder of the Droga5 ad agency.
“You’d think that Toyota would be through thick and thin all in, but obviously the situation is more polarizing than we realize,” he said.
The vast majority of the Japanese public is opposed to holding the Games — set to begin on Friday — under current conditions, polling shows, with many calling for them to be canceled outright.
The Japanese authorities and Olympic officials have played down the concerns, saying strict precautions against the coronavirus will allow the Games to be held safely.
Anxieties have continued to mount, however. This month, Tokyo entered its fourth state of emergency in an effort to stop a sudden rise in virus cases as the country faces the more contagious Delta variant. Cases, which remain low in comparison with many other developed nations, have exceeded 1,000 a day in the city, raising apprehension that measures that had succeeded in controlling the spread of the coronavirus could be losing their effectiveness.
Further complicating the situation is a steady drip of news reports about Olympic staff and athletes testing positive for the illness after arriving in Japan.
Toyota became a top Olympic sponsor in 2015, joining an elite class of corporate supporters that pay top dollar for the right to display the iconic rings of the Games in their advertising.
Until the pandemic hit, the company was one of the most visible supporters of the Olympics. In the run-up to the event, much of Tokyo’s taxi fleet was replaced with a sleek, new Toyota model prominently featuring the company’s logo alongside the Olympic rings. And the company pledged to make the event a showcase for its technological innovations, including self-driving vehicles to ferry athletes around the Olympic Village.
Toyota’s move could prompt other brands to follow suit, but several advertising experts do not expect a ripple effect.
“If you’re a Coca-Cola type, I don’t think it’ll be a retreat — the benefits of being a global sponsor will still work its magic in the U.S. and all the other countries,” Mr. Droga said. “It’s different when you’re in the center, actually in Japan, because that’s where the biggest contrast is going to be, where the Olympics aren’t like previous Olympics.”
Many companies are afraid of sacrificing more exposure, said Rick Burton, a sports management professor at Syracuse University and the chief marketing officer for the U.S. Olympic Committee at the Beijing Summer Olympics in 2008.
“My guess is that they’re going to try and push through so that they don’t lose the investment completely,” he said. “There’s an interesting calculus: If I pull out, how does that get translated in every language? In certain countries, it could seem like I did the right thing, but in others, it could be that I abandoned the one thing that gave the world hope.”
Robinhood disclosed the expected price range for its initial public offering on Monday, putting the popular stock-trading app one step closer to itself trading on the markets.
In an updated prospectus, Robinhood said it planned to sell shares at $38 to $42 each. At the midpoint of that range, it would raise $2.2 billion and be valued at about $33 billion; at the high end, it would be worth about $35 billion.
The announcement will formally kick off the final part of Robinhood’s long road to going public: a roadshow in which the company will pitch prospective investors on its financial performance.
It will test investor appetite for the online brokerage firm, which forced a sea change in stock trading by eliminating commissions and becoming a platform of choice for a new generation of day traders — but has became a target for regulators and lawmakers that have accused it of misleading customers. At a House hearing in the wake of frenzied trading in so-called meme stocks, Vlad Tenev, the chief executive and a co-founder of Robinhood, faced sharp questions from lawmakers about the company’s policies and business model.
In an unusual move, Robinhood is reserving as much as a third of I.P.O. shares for its own customers, instead of the standard universe of mutual funds and other big institutional investors.
That fits into the company’s stated goal of “democratizing finance,” but it could also make trading in the offering even more volatile than in a traditional stock sale, potentially opening itself to even more criticism.
In the updated prospectus, Robinhood also provided estimates for how it performed in the second quarter, including continued growth in revenue and paying customers from the first three months of the year. Its net loss also shrank, though the first quarter had included a one-time accounting charge related to the billions of dollars it had raised earlier in the year.
It is set to begin trading on the Nasdaq market by the end of next week.
The billionaire investor Bill Ackman said Monday that he had pulled back from a plan to use his jumbo-size SPAC to purchase a stake in Universal Music Group, the world’s largest record label, after the Securities and Exchange Commission raised concerns about the complex transaction.
Under the proposed deal, Mr. Ackman’s special purpose acquisition company, or SPAC, would have bought a 10 percent stake in Universal Music, the label behind Taylor Swift, Lil Wayne and Lady Gaga, valuing the company at more than $40 billion.
But the deal would have been complicated, and the S.E.C. was concerned whether it qualified as a SPAC deal at all. These blank-check companies, which use capital from the public market to invest in a private company, taking it public in the process, have drawn a lot of attention from investors over the past year — and increasing regulatory scrutiny.
In a letter to investors, Mr. Ackman said the team at his investment company, Pershing Square, had failed to change the agency’s mind about the multilayered deal. Investors in the SPAC, known as Pershing Square Tontine Holdings, seemed wary, too: Its shares had lost nearly a fifth of their value since the deal was announced.
“We underestimated the reaction that some of our shareholders would have to the transaction’s complexity and structure,” Mr. Ackman wrote.
The deal called for Pershing Square Tontine to invest $4 billion for a 10 percent stake in Universal Music, which was already being taken public by its parent, Vivendi. That would have left $1.5 billion in the investment vehicle, which would have been rolled over into a new publicly traded acquisition fund that would have looked to do another deal. Existing investors in Pershing Square Tontine would have received a financial instrument that gave them the right to buy into yet another deal vehicle, which would seek its own takeover target.
While Mr. Ackman’s SPAC is stepping back from the Universal Music deal, Mr. Ackman is not — his hedge fund will buy the stake directly instead.
Pershing Square Tontine now has 18 months to find and close a new deal, unless shareholders give it more time, and “our next business combination will be structured as a conventional SPAC merger,” Mr. Ackman said.
Monday
Tuesday
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Bezos goes to space: Jeff Bezos, who just stepped down as chief executive of Amazon, hopes to become the second billionaire rocket company founder to go to space, following Richard Branson.
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Netflix earnings: Everyone you know signed up for Netflix during the pandemic. What happened in the quarter when everyone wasn’t stuck at home?
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United Airlines earnings: First of three progress reports this week from U.S. air carriers navigating their way out of the pandemic.
Thursday
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Southwest Airlines and American Airlines earnings: Delta Air Lines last week said domestic leisure travel had fully recovered to 2019 levels. But there’s still a huge question whether businesses will continue to curb travel, perhaps permanently.
Friday
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Tokyo Summer Olympics: The event, delayed a year, begins as the city of Tokyo is under a state of emergency because of the pandemic. Most spectators are banned in response to a sudden jump in coronavirus cases. NBC Universal will also offer highlights from the games and coverage of the men’s basketball contest on its year-old streaming service Peacock.
In 1910, Ermenegildo Zegna was founded in the foothills of Northern Italy as a family-run maker of wool fabrics.
On Monday, the company, now a global luxury fashion house that owns the Thom Browne brand, took a major step onto the public stock markets — through one of the biggest trends on Wall Street in recent years.
Zegna announced that it would gain a listing on the New York Stock Exchange by merging with a publicly traded acquisition fund known as a SPAC. The deal is expected to value Zegna at about $3.2 billion, including debt, and may pave a path for other privately held luxury giants to follow.
The deal is also the latest sign that big luxury fashion companies are gearing up to get even bigger, seeing an opportunity in taking over rivals and becoming empires. It is a trend that has perhaps been exemplified by LVMH Moët Hennessy Louis Vuitton, the fashion empire that in recent years has struck deals to buy the likes of Tiffany & Company.
Such takeovers have soared in recent years, with rivals across the ocean taking on similar empire-building ambitions. Capri Holdings, formerly known as Michael Kors Holdings, acquired the Italian fashion house Versace for $2.1 billion in 2018, while Tapestry, once known as Coach, has bought companies including Kate Spade and Stuart Weitzman.
The luxury industry has been resilient, as consumers have kept up spending on jewelry, apparel and other indulgences — including as the global economy slowly emerges from a pandemic. Shares of LVMH, whose brands include Dior, Stella McCartney and Fenty, are up more than 60 percent this year; those in Kering, the parent of labels like Gucci and Saint Laurent, are up 45 percent.
For much of its existence, Zegna was known primarily as a top-tier maker of men’s wear fabrics and, later, suiting. (It still makes suits for other high-end labels, notably Tom Ford.) But with its purchase in 2018 of a majority stake in the fashion label Thom Browne, Zegna began its own ambitious plan to become a stable of luxury brands.
Zegna now runs nearly 300 stores in 80 countries. And in a sign of optimism about revived consumer spending on fashion, the company expects its sales this year to come close to prepandemic levels.
While Zegna’s pursuit of more resources to expand is not novel, how it is doing so is.
It is merging with a SPAC — formally known as a special purpose acquisition company — a fund that is raised in the stock markets solely for the purpose of merging with a privately held company and giving it a stock listing.
“We will continue to invest in creativity, innovation, talent and technology in order to sustain Zegna’s leadership position in the global luxury market,” Ermenegildo Zegna, the company’s chief executive and grandson of its founder, said in a statement.
Such funds have exploded in popularity over the past two years for allowing companies to join stock markets more quickly than through a traditional initial public offering. (SPACs have increasingly come under scrutiny by regulators in the United States, where most of these funds are listed.)
Merging with Zegna is a fund run by Investindustrial, a European investment firm. The deal will give Zegna about $880 million in fresh cash while allowing its founding family to retain a roughly 62 percent stake.
“Our goal now is to support Zegna in this important new chapter of its history while opening the opportunity to the public to invest in one of the last great iconic independent luxury brands,” Sergio Ermotti, the chairman of the Investindustrial SPAC, said in a statement.
The deal is expected to close by the end of the year, pending approval by the SPAC’s shareholders.
Vanessa Friedman contributed reporting.
Major oil-producing nations have agreed to begin pumping more oil beginning next month, Stanley Reed reports in The New York Times.
The deal, reached on Sunday by the countries in a group known as OPEC Plus, could help ease the pressure on gas prices and inflation as economies around the world recover after pandemic lockdowns.
Gasoline prices in the United States have been steadily rising, and the average price of a gallon of regular gasoline in the United States is now $3.17, according to AAA. A year ago, as pandemic lockdowns kept people close to home, gas cost just $2.18 a gallon on average. And the higher gas prices have been adding to inflation, a key measure of which climbed at the fastest pace in 13 years in June.
Under the deal announced on Sunday, OPEC Plus, a group of 23 nations led by Saudi Arabia and including Russia, will increase output each month by 400,000 barrels a day, beginning in August. That will add about 2 percent to the world’s supply by the end of the year. The group accounts for roughly 40 percent of the world’s crude oil.
Treasury Secretary Janet L. Yellen has cast doubt on the merits of the trade agreement between the United States and China, arguing that it has failed to address the most pressing disputes between the world’s two largest economies and warning that the tariffs that remain in place have harmed American consumers.
Ms. Yellen’s comments, made in an interview with The New York Times last week, come as the Biden administration is seven months into an extensive review of America’s economic relationship with China, write The Times’s Alan Rappeport and Keith Bradsher. The review must answer the central question of what to do about the deal that former President Donald J. Trump signed in early 2020 that included Chinese commitments to buy American products and reform its trade practices.
Tariffs that remain on $360 billion of Chinese imports are hanging in the balance, and the Biden administration has said little about the deal’s fate. President Biden has not moved to roll back the tariffs, but Ms. Yellen suggested that they were not helping the economy.
“Tariffs are taxes on consumers, in some cases it seems to me what we did hurt American consumers and the type of deal that the prior administration negotiated really didn’t address in many ways the fundamental problems we have with China,” she said.
But reaching any new deal could be hard given rising tensions between the two countries on other issues. The Biden administration warned U.S. businesses in Hong Kong on Friday about the risks of doing business there, including the possibility of electronic surveillance and the surrender of customer data to authorities.
Chinese officials would welcome any unilateral American move to dismantle tariffs, according to two people involved in Chinese policymaking. But China is not willing to halt its broad industrial subsidies in exchange for a tariff deal, they said.
Academic experts in China share the government’s skepticism that any quick deal can be achieved.
“Even if we go back to the negotiating table, it will be tough to reach an agreement,” said George Yu, a trade economist at Renmin University in Beijing.
After a weekend of rancor between the White House and Facebook, President Biden on Monday softened his forceful criticism of social networks over the spread of misinformation about Covid-19 vaccines.
At a White House news conference largely focused on the economy, Mr. Biden stepped back from his comment on Friday that platforms like Facebook were “killing people.”
“Facebook isn’t killing people,” Mr. Biden said. “These 12 people are out there giving misinformation. Anyone listening to it is getting hurt by it. It’s killing people. It’s bad information.”
He appeared to be referring to a study from earlier this year showing that 12 online personalities, with a combined following of 59 million people, were responsible for the vast majority of Covid-19 anti-vaccine misinformation and conspiracy theories, and that Facebook provided the most consequential platform.
“My hope is that Facebook, instead of taking it personally that I’m somehow saying ‘Facebook is killing people,’ that they would do something about the misinformation,” Mr. Biden said.
In a blog post on Saturday, Facebook called on the administration to stop “finger pointing,” laid out what it had done to encourage users to get vaccinated, and detailed how it had clamped down on lies about the vaccines.
“The Biden administration has chosen to blame a handful of American social media companies,” Guy Rosen, Facebook’s vice president of integrity, said in the post. “The fact is that vaccine acceptance among Facebook users in the U.S. has increased.”
Mr. Rosen said that the company’s data showed that 85 percent of its U.S. users had been or wanted to be vaccinated against the coronavirus. The country fell short of meeting President Biden’s target of having 70 percent of American adults vaccinated by July 4, but, Mr. Rosen said, “Facebook is not the reason this goal was missed.”
On Sunday, the surgeon general, Vivek Murthy, reiterated warnings that false stories about the vaccines had become a dangerous health hazard. “These platforms have to recognize they’ve played a major role in the increase in speed and scale with which misinformation is spreading,” Mr. Murthy said on the CNN program “State of the Union.”
On Monday, Mr. Biden called on Facebook’s officials to consider the impact the spread of misinformation about the vaccine could have on people they cared about.
“Look in the mirror,” Mr. Biden said. “Think about that misinformation going to your son, your daughter, your relative, someone you love. That’s all I’m asking.”
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