Signs of Economic Recovery Threatened by New Closures: Live Updates

The president of the Federal Reserve Bank of New York, John C. Williams, told a group of investors and market watchers that the central bank needed to think “carefully” about how to safeguard financial market infrastructure.

Financial markets approached the brink of a total meltdown in mid-March, as even trading in the Treasury securities that form the backbone of the global financial system became difficult.

Mr. Williams said officials were thinking through what happened in March, and were also contemplating earlier disruptions in very short-term funding markets, called repo, that caused problems in September 2019. This is not the time now to draw “firm conclusions,” he said, but as the Fed makes it through the pandemic, it will be important to “really think through” how to safeguard the internal gears of finance.

“I’m never going to be convinced that we can come up with a perfect mousetrap,” he said, explaining that the Fed would still need to be ready to step in to make sure markets continue working in moments of shock. “But those should be extraordinary circumstances.”

“There will be important lessons here,” Mr. Williams said, pointing out that the 2008 global financial crisis ushered in useful changes to bank regulation and that this could be a similar case. “Out of this situation, I think we will get some lessons that will help us.”

Martin Navarro is back at work — but he’s not sure for how long. A respiratory therapist and sleep technician in Wasco, Calif., near Bakersfield, he works in a sleep lab that reopened this month after closing in March.

He’s worried the jump in coronavirus cases will force facilities not offering acute care to close again, with doctors diverted to emergency treatment. “I definitely am concerned,” he said.

After he was laid off, it took two and a half months for Mr. Navarro to start receiving unemployment benefits from the state. “There was no one to talk to,” he said. “They took questions by email, and it took 10 to 20 days for them to respond.”

During that time, Mr. Navarro and his wife, Kiki, who is also unemployed, had to skip mortgage, car and insurance payments. “It was tough,” he said.

He is happy to be back at the lab, where he works from 7:30 p.m. to 5:30 a.m. and monitors patients for indicators like oxygen level as they sleep. He earns $18 an hour. “I really enjoy it,” he said. “I’m scheduled to work over the next three weeks, but tomorrow could be my last day.”

The national average interest rate on 30-year fixed mortgages fell below 3 percent for the first time on record this week, as the Federal Reserve’s recent efforts to pump trillions of dollars into financial markets shows signs of filtering through into the deeply troubled American economy.

Freddie Mac’s nationwide weekly survey of mortgage rates showed the average rate on a 30-year mortgage at 2.98 percent as of Thursday.

It was the latest in a string of record-low readings for the cost of home loans, and a rare bright spot for the economy. Roughly 15 million American jobs have been destroyed since the coronavirus pandemic exploded in March. Gross domestic product is expected to experience its largest ever contraction on record in the second quarter. The unemployment rate of 11.1 percent, while down from 14.7 percent in April, is still the highest since World War II.

But for those who are still receiving a paycheck, the collapse of borrowing costs in the market for home loans has suddenly made homeownership more affordable, analysts and economists say.

“If you have your job, you’ve got your financial house in order, gosh this is a great time to go and buy a home because mortgage rates are dirt cheap,” said Frank Nothaft, chief economist at CoreLogic, a real estate research firm.

Amid continuing layoffs, some employers are hiring. At America Knits in Swainsboro, Ga., managers have hired 25 people in the last three months, bringing the total work force to 80. And the company plans to bring on 14 more workers in the coming weeks.

When America Knits opened a year ago, the goal was to make high-end T-shirts, said Steve Hawkins, the company’s president. With the arrival of the coronavirus this spring, the company shifted gears and is producing cloth masks and isolation gowns, in addition to a small number of T-shirts.

“The first four weeks were difficult,” Mr. Hawkins said. But as operators grew more skilled and the company became more efficient, he said, mask and gown production became profitable. “Even though we are moving back to T-shirts, we hope to reinvent ourselves as a medical supplier,” Mr. Hawkins said.

Swainsboro, in rural Georgia between Macon and Savannah, was home to larger textile companies that closed or moved offshore in recent decades. Mr. Hawkins said that he was trying to revive that tradition and that he hoped to increase production of T-shirts and fleece items by fall.

Many local employers pay close to the federal minimum wage of $7.25 an hour; America Knits offers about 25 percent more. “There’s a need for jobs,” Mr. Hawkins said. “People here still like to make things and like the factory environment.”

The European economy hit bottom in April and began bouncing back in May and June, the eurozone’s top central banker said Thursday. But Christine Lagarde, the president of the European Central Bank, also warned that the economic recovery has been uneven and that the region has a long way to go to get back to normal.

“The level of activity remains well below the levels prevailing before the coronavirus pandemic and the outlook remains highly uncertain,” Ms. Lagarde said at a news conference in Frankfurt following a meeting of the central bank’s Governing Council.

The bank left its monetary policy unchanged at the meeting, as expected. The Governing Council had previously approved stimulus measures that would potentially pump 1.35 trillion euros ($1.5 trillion) into the economy. Ms. Lagarde said Thursday that she expected the central bank to spend all of the money, unless the eurozone pops back to life much more quickly than expected.

Ms. Lagarde acknowledged the risk that rising infections in America could affect the eurozone, which trades more with the United States than any other country. Central bank policy is designed to absorb a possible second wave, she said. Members of the Governing Council agreed “that we were in a good place,” she said.

As tens of millions of Americans have filed for jobless benefits in recent months, unemployed workers and economists alike have held out hope that most of those losses would prove temporary.

Those hopes may now be fading.

A survey conducted this month for The New York Times by the online research platform SurveyMonkey asked Americans whether they had returned to their old jobs and, if not, whether they expected to.

The survey had some encouraging news: Of the 17 percent of people who lost their jobs at some point during the crisis, 40 percent had returned to work, up from 29 percent when the same question was asked in June.

But of those who are still out of work, only 22 percent expect to return to their old jobs within the next month, and less than half expect ever to go back. If they are right, that would suggest that millions of jobs have been permanently destroyed.

Economists say it is hard to know how much to trust such self-assessments — laid-off workers might not have much insight into whether their former employers still plan to bring them back. But a wave of layoff announcements from big corporations in recent days suggest they may be correct. If so, it would be a gloomy indicator for the economy, because it takes much longer to create new jobs than to recall workers from furlough.

Retail sales climbed 7.5 percent in June after a sharp rebound in May, the Commerce Department said Thursday, as federal stimulus checks and tax refunds continued to fuel a burst of summertime spending at newly reopened stores and restaurants. But the good news may be petering out as that money dries up and the coronavirus pandemic surges around the United States.

The jumps in deaths and cases in Florida, Texas and California, in particular, are putting the specter of another shutdown on the horizon and may spook consumers who were beginning to emerge from “lockdown fatigue.” That may be a blow for retailers that just reopened and were already facing the significant challenge of bringing customers back into stores that are now outfitted with safety measures like plexiglass barriers, face masks and tape markings to signify social distancing protocols.

The June data followed a May jump that was the largest monthly surge on record, even before it was revised up to 18.2 percent — but that had followed two months of record declines. While overall sales are within 1 percent of where they were in February, that figure masks major shifts that have taken place in what people are buying and whether they are shopping from home.

In June, categories like restaurants and bars, electronics and appliance stores and clothing and clothing accessories saw jumps, but still tumbled overall from a year earlier. There was also a surge in spending for sporting goods and books, with sales in that category increasing 27 percent from May. Grocery stores experienced a slight decline in sales, as people started to eat more meals outside their homes. Spending on motor vehicles increased from May and was up from last year.

“When people feel safe about their health, there is a real desire to shop again,” said Michelle Meyer, head of U.S. economics at Bank of America.

But shoppers pulled back as soon as the virus began surging in parts of the country that had been largely spared from the pandemic early on, Ms. Meyer said.

“Looking ahead to July or August it starts to become more challenging to repeat the gains we have been seeing,” she said.

Economists at Morgan Stanley said in a note last week that the resurgence of Covid-19 cases in the southern and western parts of the U.S. “keeps us cautious on the durability of the consumer recovery in the near-term.” Even without new state and local measures, they wrote, more risk aversion and voluntary social distancing could cause the spending rebound in May and June to deteriorate.

Many retailers that were deemed nonessential reopened in May and June and now face the prospect of a second closure. Apple, for example, has re-closed about 100 U.S. stores in the past month based on rising case counts in certain states.

As coronavirus cases surged in many parts of the country and new restrictions on business were imposed, 1.3 million new claims for state unemployment benefits were filed last week, virtually the same number as the week before, the Labor Department reported Thursday.

It was a slight drop from 1.31 million in the week ending July 4.

Although weekly claims have plunged from late March and early April, when they twice topped six million, they have exceeded one million for 17 weeks.

New claims for Pandemic Unemployment Assistance, the government’s emergency program for laid-off freelancers, the self-employed and others not covered by traditional unemployment benefits, fell to 928,000 from slightly over one million a week earlier. That number, unlike the figure for state claims, is not seasonally adjusted.

Experts have been watching closely to see what economic impact the renewed coronavirus outbreak in states like California, Texas and Florida will have on the overall economy.

The persistently high level of new unemployment claims suggests that “it’s going to be a much more gradual recovery than we were all expecting,” said Ian Shepherdson of Pantheon Macroeconomics. Even in the aftermath of the financial crisis in early 2009, the highest weekly figure for new claims was 665,000.

The latest figures come as a key element of financial support for the unemployed — the $600 weekly supplemental payments from the federal government — is set to expire this month.

Low-wage workers have been especially hard hit by the pandemic, accounting for more than half the total decline in employment, according to new research from Oxford Economics.

“The labor market is not as bad as it was a couple of months ago, but we are still in a very deep hole,” said Gus Faucher, chief economist at PNC Financial Services Group in Pittsburgh.

Some of the bright spots in spending have included areas like home improvement and sporting goods and bookstores. The retail sales data for June showed a 27 percent jump in the category of sporting goods, hobby, musical instruments and bookstores, which rose even compared to June 2019, and followed a surge in May.

Consumer spending has been shifting from traditional entertainment to what analysts have called “solitary leisure activities,” bolstering sales of bicycles, coolers and drinkware for parks and beaches, and hiking and camping gear, according to a Bank of America research note this month.

Megan Searfoss, the owner of Ridgefield Running Company, a running store in Ridgefield, Conn., seems to be a beneficiary of the trend. She had made plans earlier this year to expand to Darien, Conn., in time to capitalize on excitement around the Olympics, the New York City Marathon and the high school cross country season.

“All that stuff went away,” she said. But Ms. Searfoss decided to forge ahead with the Darien store, which opens on Thursday, motivated by changes she made to her operations in recent months and her conviction that small businesses have become more appealing amid the pandemic.

“Big malls may be going away, but this is not, as long as a small business is investing in technology and experience,” said Ms. Searfoss, who helped found the Ridgefield store in 2014. After the store closed on March 16, she started to reach out to customers who had shopped at the store previously and set up virtual fittings through Zoom. She also introduced free same-day and next-day deliveries in the area, getting shoes and other gear to customers even faster than Zappos and Amazon, she said.

The store has been seeing customers through appointments since it reopened on May 20, and has been thriving as many people, including former gym-goers, look for new shoes and do more running and walking, she said. Still, she acknowledged the shopping experience had changed.

“It’s a much more stressful experience because we’re a very touchy business, usually lacing up shoes for customers and showing them how to run properly, and we don’t do that anymore,” Ms. Searfoss said. With masks on, she said, “they can’t tell when you’re joking anymore and it’s harder to get a rapport.”

But she doesn’t believe that is limiting business. “We’re getting a lot of new consumers who have never walked or ran and now are taking this time to try it,” she said.

In some of the states hardest hit by the resurgence in the coronavirus, initial jobless claims jumped last week, a sign of the renewed economic toll wrought by the pandemic.

Florida saw an increase of 62,467 new claims, nearly double the new filings a week earlier. Georgia recorded a jump of 31,176, while new claims in California rose by 22,941. Unlike the overall numbers for filings nationwide, this data is not seasonally adjusted.

Washington State, another new hot spot, reported 12,272 new claims.

One exception to the trend was Texas, where claims fell by 11,509, despite a resurgence in the virus. New filings had risen by more than 20,000 the previous week.

As caseloads have rebounded, state authorities have wrestled with the proper response. The increases in the week ending July 11 suggest that as businesses like restaurants and bars close again, workers find themselves confronting unemployment for a second time this year.

States that have been better able to control the spread of the virus posted healthier figures in terms of the jobs market. In New York, where outdoor dining has returned and many businesses have reopened, new claims fell by 2,157, while initial filings sank by 10,055 in New Jersey.

Economists see both hopeful and worrying signs about the health of the American consumer in Thursday’s retail sales figures.

The 7.5 percent increase in retail sales in June from the previous month is “clear evidence that people are returning to stores,” said Michelle Meyer, head of U.S. economics at Bank of America.

But Ms. Meyer said that much of the rebounding sales came in the first part of the month before new infections began spreading rapidly through states like Texas, Florida and California. She says that toward the end of last month and in the first few weeks of this month, consumers retreated again, even before states imposed new lockdowns.

“There was a real difference between the start and the end of the month,” she said.

The reality is that huge swaths of the retail, service and entertainment economy were still shut down in June, including movie theaters and many indoor malls. And even as some venues and stores reopened in states like New York, their closure in the states with rising infections is diminishing those gains.

The end of the supplemental unemployment benefits, totaling $600 a week, later this month could also deflate spending later in the summer. Back to school spending is also a question mark because so many schools have not decided whether they will require students to work remotely again in the fall.

Looking ahead, Beth Ann Bovino, chief U.S. economist at S&P Global, said there were growing questions about whether the bounce in retail sales in May and June would be fleeting.

“People are scared that this recovery bounce might be one and done,” said Ms. Bovino.

The federal government’s $600 weekly supplemental payment to unemployed Americans has been a major boost both for recipients and for the economy, according to research landing as Congress debates whether to extend the payments past July.

An analysis by economists at the JPMorgan Chase Institute and the University of Chicago found that workers quickly increased their spending once unemployment payments began to arrive in their bank accounts. In fact, they spent about 10 percent more than they did before the pandemic.

That’s not surprising given estimates that as many as two-thirds of workers on unemployment have been receiving more money than they earned in their jobs, thanks to the federal supplement. Should that benefit expire as scheduled at the end of the month, the analysis suggests, there would be abrupt consequences not only for millions of households, but also for the corners of the economy where they’ve been spending this money.

Congress and the White House have yet to agree on extending the payments, or whether to cap them at a less generous payout as the economic crisis stretches deeper into summer.

The economists’ analysis was based on about 60,000 Chase customers in 10 states whose checking accounts show a loss of wages earlier in the crisis and then the deposit of weekly unemployment payments.

Unemployment benefits for many workers are sent on prepaid debit cards, not deposited into bank accounts, so those captured in the study are likely on average to be more financially stable than typical jobless workers. That means the results may even underestimate the effect of the expanded unemployment benefits on increasing consumption.

The psyche of the American shopper is volatile. Just ask Andrew Moquin, who reopened his jewelry store early last month, after three months of lockdown.

He predicted customers, flush with money they had not been spending on trips, restaurants and shopping during the pandemic, would come charging back. But business was slower than he expected at his store, Andrews Jewelers, in a suburb of Buffalo, N.Y.

“During those first few weeks out of the gate, consumers were in disbelief,” he said. “They were calling me daily asking me ‘Are you really open again?’”

But over the past two weeks, it was like a switch flipped and sales have “been on fire.” With the number of coronavirus cases declining in New York, and businesses staying open, Mr. Moquin’s customers are back in force, buying “anything with diamonds.”

“I feel like the consumers are just fed up,” he said. “They are moving on with their lives and they are saying, ‘I can’t solve these problems,’ whether it be Covid-19 or the divisiveness in the political arena. They want to be happy or they want their loved ones to be happy. You can only contract for so long before something expands.”

Connie Medina has seen no such expansion since she reopened her shop, Your CBD Store, in Albany, N.Y., on June 3.

“I figured people would be coming out in droves to purchase what they needed,” Ms. Medina said.

At first, a few stalwart customers did return to buy up CBD oils and edible products that are used for healing and wellness. But the foot traffic along her street and to nearby restaurants has been sparse.

“It’s been very very slow,” said Ms. Medina, whose store sits on New Scotland Avenue. “I think with the economy, people are saving their money and not waiting to shop or to be out and about. If they do shop, they are doing it online. Mom-and-pop stores are not on people’s minds right now.”

Netflix will report quarterly earnings after the market closes on Thursday, and investors are anticipating a surge in subscribers. (The company’s first-quarter performance blew away expectations.)

Can you trust the forecast?

Netflix said it expected 7.5 million more customers in the second quarter, based on “mostly guesswork.” (The company concedes its guidance is often wrong and encourages investors to ignore it.) In a note last week, Goldman Sachs predicted 12.5 million. There’s a chance that some people signed sooner because they’re still stuck at home, can’t figure out TikTok and don’t care for Quibi.

How strong is its content pipeline?

Netflix said its slate was on track, but that fresh programming would most likely slow in the current quarter. That’s important, because new shows drive new subscriptions. (Tip: “The Old Guard,” a smart, humane action epic starring Charlize Theron.)

Can it maintain positive cash flow?

Netflix had positive free cash flow last quarter, and it’s likely to keep it up in its latest results — but not for the rest of the year. Expect it to burn about $1 billion in 2020.

Stocks on Wall Street slipped on Thursday, following global markets lower, as the market’s turbulent week continued with investors assessing new reports on the world’s two largest economies.

Data on U.S. retail sales in June and unemployment claims for last week showed the economy was continuing to limp out of a coronavirus-driven slump as several states eased lockdowns from May. That recovery, however, is already threatened by a recent surge in domestic coronavirus cases that have forced states to shut down again.

Retail sales climbed 7.5 percent in June after a sharp rebound in May, the Commerce Department said, a surge in spending fueled in part by federal stimulus checks and tax refunds. About 1.3 million new claims for state unemployment benefits were filed last week, virtually the same number as the week before, the Labor Department reported.

Earlier, China reported that its economy grew 3.2 percent in the second quarter, after contracting 6.8 percent in the first three months of 2020, but its retail sales numbers were weak.

The S&P 500 fell nearly 1 percent by midday. Stock markets in Europe and Asia were also lower. In a reversal of Wednesday’s trading, stocks that are likely to benefit most from a return of travel when the pandemic eventually recedes — airlines, hotel operators and travel websites like Expedia Group — were the worst performers in the S&P.

Also weighing on markets: The White House said on Wednesday it had not ruled out further sanctions on top Chinese officials to punish China for its handling of Hong Kong. The United States also said it was studying the national security risks of social media applications including China’s TikTok and WeChat.

Oil prices fell after OPEC and allies such as Russia agreed to taper record supply curbs from August, though the drop was cushioned by hopes for a swift pickup in U.S. demand after a big drawdown from the country’s crude stocks.

• Delta Air Lines remains “overstaffed” even after 17,000 employees, a fifth of its workforce, signed up to take buyouts or retire early, the carrier’s chief executive, Ed Bastian, said in a companywide memo. Mr. Bastian encouraged more employees to sign up for unpaid leaves of absence in order to avoid involuntary furloughs. American Airlines on Wednesday said that it may furlough as many as 20,000 people when a federal payroll stimulus expires this fall, while United Airlines last week said it could furlough up to 36,000 people after those funds run out.

• The number of hours people worked in Britain dropped to its lowest level in more than two decades, official statistics showed on Thursday. Hours worked between March and May fell by nearly 17 percent from a year earlier, the steepest decline since estimates began in 1971. The outlook is worsening. A survey by the British Chamber of Commerce found that 29 percent of businesses expected to lay people off in the next three months.