Layoffs Are Just Starting, and the Forecasts Are Bleak

YOUR BEST NEWS ! Shutdowns in the retail and hospitality businesses may be an early sign of the job losses that the coronavirus outbreak will inflict on the economy.

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Newsletter: How Deep and How Long for a Downturn?

YOUR BEST NEWS!

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The economy is closing up shop as governments, businesses and individuals combat the coronavirus pandemic. Jeff Sparshott here with the latest.

Plan for a Sharp Recession, Hope for a Quick Rebound

U.S. households, businesses and investors should brace for a sharp economic downturn in the first half of 2020 because of the new coronavirus pandemic—and hope for a bounce back during the second half of the year. Along the way, the government is on track to test federal budget deficit records hit after the 2008 financial crisis, when annual red ink soared past $1.5 trillion. Those are two main messages coming from economists as they scramble to update forecasts in a fast-moving health crisis that policy makers are racing to blunt. A contraction in U.S. economic activity, in turn, would mean global recession, Jon Hilsenrath and Kate Davidson report.

The outlook is highly uncertain. Factors that will determine the contours of the looming downturn: The path for the coronavirus itself, the response of policy makers to support the economy and the resilience of a financial system being strained by the unexpected shock.

WHAT TO WATCH TODAY

U.S. retail sales for February are expected to rise 0.1% from the prior month. (8:30 a.m. ET)

U.S. industrial production for February is expected to rise 0.4% from the prior month. (9:15 a.m. ET)

U.S. business inventories for January are expected to fall 0.1% from the prior month. (10 a.m. ET)

The U.S. job openings and labor turnover survey for January is out at 10 a.m. ET.

The National Association of Home Builders housing market index for March is expected to hold at 74, unchanged from the prior month. (10 a.m. ET)

President Trump has a series of coronavirus-related activities scheduled for the day, including a 9:30 a.m. ET call with restaurant executives, a 2 p.m. ET meeting with tourism industry executives and a 3:30 p.m. call with retailers and wholesalers.

The White House coronavirus task force holds a briefing at 10:30 a.m. ET.

Japan’s trade balance for February is out at 7:50 p.m. ET.

TOP STORIES

Bazooka Jay

What else can the Fed do? The central bank unleashed much of its arsenal in an attempt to stem the economic impact of the coronavirus. It has a few more tools at its disposal, though, including a facility for short-term loans to banks and a tool to help unclog the market for short-term commercial debt, Nick Timiraos and Julia-Ambra Verlaine report.

White House economic adviser Lawrence Kudlow on Monday hinted at coming action. “The Fed has enormous power,” he told reporters at the White House. “And it looks like they’re going to start using it in connection with the Treasury Department and the president and the executive branch.”

The country’s biggest banks may already be helping the Fed on one front. They borrowed from the central bank’s emergency-lending fund, not out of panic but to remove the public stigma of doing so. Banks relied heavily on the Fed window during the 2008 financial crisis. They all but abandoned it in recent years out of concern that it would paint them as weak, Liz Hoffman and David Benoit report.

The Dow Jones Industrial Average dropped nearly 3,000 points Monday—its steepest decline of the monthlong selloff—reflecting fear the emergency measures taken by the Fed may not be enough to ward off a coronavirus-induced recession​. Early Tuesday, global stock markets were jittery and futures tied to the Dow Jones Industrial Average wavered between gains and losses.

The Trump administration urged Americans to avoid nonessential travel and large gatherings, significantly ramping up its recommendations aimed at slowing the spread of the virus. Germany shut its borders and France announced a nationwide quarantine, as virus numbers across the U.S. and Europe continued to grow.

Amazon.com plans to hire an additional 100,000 employees in the U.S. as millions of people turn to online deliveries at an unprecedented pace. Amazon plans to deploy the new workers to fuel its sprawling e-commerce machine and is raising pay for employees in fulfillment centers, transportation, stores and deliveries in the U.S. The tech giant’s decision to go on a hiring spree and boost worker pay shows the dual challenge companies such as Amazon face as they seek to meet surging demand for food and key household items and also take care of employees at the front lines of the pandemic, Dana Mattioli reports.

U.S. airlines are seeking over $50 billion in financial assistance from the government, more than three times the size of the industry’s bailout after the Sept. 11 attacks. 

France is promising €45 billion ($50.16 billion) in immediate aid for businesses and employees impacted by the pandemic.

The Commodity Futures Trading Commission is preparing a blitz of short-term regulatory relief that officials hope will allow derivatives markets to continue operating smoothly even if participants are ordered to work from home.

U.S. crude-oil prices slid below $30 a barrel Monday, tumbling to a fresh four-year low with analysts expecting the coronavirus and a Saudi-Russia price war to result in a glut of fuel.

Factories in the U.S. are starting to suffer as supply chain issues from products made in China and Europe continue to build. The New York Fed on Monday reported the sharpest drop on record for a state manufacturing index. “This report is likely the first of many indicators we receive over the coming weeks that will signal that economic activity has slowed sharply in the wake of the coronavirus outbreak,” said Oxford Economics economist Gregory Daco.

Finally, forecasts from economists are increasingly dire. Second-quarter gross domestic product is widely expected to contract. Underscoring the uncertainty, there are a range of estimates on how much. Here are a few recent updates:

  • J.P. Morgan Chase: -3%
  • Wells Fargo: -3.3%
  • Morgan Stanley: -4%
  • Goldman Sachs: -5%
  • IHS Markit: -5.4%
  • UCLA Anderson Forecast: -6.5%
  • TS Lombard: -8%
  • Pantheon Macroeconomics: -10%
  • Berenberg: -11.7%

(Change from previous quarter at an inflation and seasonally adjusted annual rate.)

“Simply put we believe that when the business cycle dating committee of the National Bureau of Economic Research meets they will note that the 2020 recession began this month.” —David Shulman, senior economist at UCLA Anderson Forecast

WHAT ELSE WE’RE READING 

Some good news as summer approaches? “We find, under a linear regression framework for 100 Chinese cities, high temperature and high relative humidity significantly reduce the transmission of COVID-19,” Jingyuan Wang, Ke Tang, Kai Feng and Weifeng Lv write in a new paper.

The National Bureau of Economic Research rounded up several papers on the economic consequences of previous epidemics here

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