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Newsletter: The Recovery Is Losing Momentum

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This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

Slow Ride

The nation’s fledgling economic recovery is losing momentum, as a new wave of coronavirus infections causes businesses to scale back or reshutter in several big states and consumers to retreat anew. Restaurant seating rates have fallen of late in Florida, California, Arizona and Texas. Foot traffic to businesses has ebbed in some states since late June. Google searches for “file for unemployment” in Arizona and Florida are rising. The new economic disruptions are concentrated in the three most populous states—California, Texas and Florida—and Arizona, all of which have seen a rise in infections in recent weeks. Together, those states make up about 30% of all U.S. economic output, Sarah Chaney, Gwynn Guilford and Josh Mitchell report.

Many economists still believe the economy is growing again after a sharp contraction in the spring caused by the pandemic. But some have lowered their expectations in recent days, suggesting the shape of the recovery will be jagged rather than a V signifying a sharp drop in activity followed by a similarly sharp rebound.

WHAT TO WATCH TODAY

U.S. jobless claims in the week ended July 4 are expected to fall to 1.388 million from 1.427 million a week earlier. (8:30 a.m. ET)

U.S. wholesale inventories for May are expected to fall 1.2% from a month earlier. (10 a.m. ET)

The WSJ’s survey of economists is out at 10 a.m. ET.

Atlanta Fed President Raphael Bostic speaks to the Tax Policy Center at 12 p.m. ET.

TOP STORIES

Out of Work

The number of workers seeking new unemployment benefits has plateaued at a historically high level, showing that many Americans are still losing their jobs even as broad swathes of the labor market heal. Weekly jobless benefit applications, historically a proxy for layoffs, have held between 1 million and 2 million since late May, and economists expect the figure will remain in that range again for the week ended July 4, Eric Morath and Kim Mackrael report.

When Congress passed the Cares Act, it accomplished something never before achieved in the U.S.: It roughly matched the number of people receiving unemployment benefits with the number counted as unemployed. The historical comparison isn’t perfect: Some of those on unemployment might not be unemployed by the Bureau of Labor Statistics definition, and some who are unemployed may still not be receiving benefits for a variety of reasons. But the law is one reason incomes jumped in April and  likely supported a surge in consumer spending in May. 

United Airlines said it is exploring the possibility of shedding almost half its U.S. workforce, the first major domestic carrier to detail how deep the industry might have to retrench amid the pandemic-driven slump in passenger demand. The Chicago-based carrier is sending mandatory 60-day notices under federal labor rules to 36,000 of its employees, a week after American Airlines said it may have as many as 20,000 more staff than it needs to handle reduced demand. The U.S. airline industry is facing its biggest shake-up in a generation, with executives expecting a recovery in the demand slump to take years, Doug Cameron and Alison Sider report.

Companies don’t expect to return to prepandemic employment levels this year—or next. A survey conducted by Duke University and the Richmond and Atlanta Feds found CFOs more optimistic about their own businesses but fairly pessimistic about the path for employment growth. “In fact, the typical firm in our panel does not expect to regain their pre-Covid employment levels until sometime after the end of 2021,” Atlanta Fed economists wrote in a summary of the CFO survey.

How Much Is All This Going to Cost?

The U.S. budget deficit totaled $863 billion in June, nearly as much as the entire gap for fiscal year 2019, the Congressional Budget Office said Wednesday. Federal spending tripled to combat the coronavirus pandemic and tax revenues plunged, Kate Davidson reports.

The U.K. government announced up to $38 billion in fresh stimulus measures intended to boost the country’s economy as it exits lockdown. Since measures designed to contain the novel coronavirus became widespread in March, governments around the world have committed trillions of dollars to ensuring the survival of businesses and to supporting household incomes. The U.K.’s new package marks the start of a second phase of government spending and tax cuts designed to boost demand and give businesses the confidence to put their employees back to work, Paul Hannon reports.

Trade Trouble

President Trump’s trade war with China is meeting at least one of his goals. The U.S. trade deficit with China in the past 12 months has dropped to its lowest since 2012. Unfortunately, that narrowing has come from the U.S. buying less from China, rather than China buying more from the U.S. Slack Chinese imports are a symptom of the underlying reason China’s trade surpluses, not just with the U.S. but the world, persist: China consumes too little and saves too much. Consumption is still under 40% of Chinese GDP, one of the lowest ratios among major economies. That imbalance is why trade conflicts aren’t about to go away even if Mr. Trump isn’t re-elected, Greg Ip reports.

WHAT ELSE WE’RE READING

Want to move to a big city but don’t have a college degree? Career opportunities are drying up, have been for decades and the Covid-19 pandemic will probably make it worse. “While cities remain vibrant for workers with college degrees, the urban skills and earnings escalator for non-college workers has lost its ability to lift workers up the income ladder. Measured by occupational structures and real wage levels, urban opportunities for non-college workers have deteriorated swiftly and pervasively relative to non-urban labor markets,” MIT’s David Autor writes in a new research brief.

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Economy

Can Truth and Reconciliation Prevent the Crash & Burn?

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QUESTION: Hi Marty,

After Apartheid, South Africa assembled the Truth and Reconciliation Commission. Do you think there is any chance that in five or so years that we could have a similar commission where politicians, business leaders, scientists and media figures admit their crimes and lies in exaggerating the virus? In such a commission victims can also give statements about the lives and livelihoods lost due to the fake lockdown.

SMD
ANSWER: I seriously doubt that will happen near-term. Perhaps it will occur after they have destroyed everything post-2032, and those who thought the left would be Utopia discover that they too will surrender all their freedom. We are in such a political crisis where the right just wants to be left alone and the left demands they are subjugated and reduced to economic slaves. This is certainly not the country I had thought I lived in. My family has fought in every war since the American Revolution. My cousin still has the musket on the wall from the Revolution. All I can do is hope for is the breakup of the United States to be able to live in peace or be forced to leave. Perhaps this is the choice many of our ancestors had to make to leave Europe in search of freedom.

 

 

This political crisis has devolved into such hatred it is unimaginable. It began with Hillary calling anyone who voted for Trump “deplorable” and this has escalated into not just class warfare, but race, political warfare, and an all-out war against the history and the past. Even the US military base in the Indian Ocean is under attack because the USA leases it from Britain and they are calling this colonialism. We are declining into the collapse of Western Civilization as we have known it. There is nothing that will stand the test of time. Everything offends someone and civilization requires cooperation where everyone benefits by coming together. This rising tide of hatred is tearing everything apart. Perhaps now you will understand why Socrates’ forecast that the United States and the European Union will break apart. Our civilizations cannot be maintained with such hatred and confrontation.

You cannot allow one philosophy to subjugate everyone else. That is NOT what a free society is all about. You cannot allow even religion to take control of government (i.e. Iran). What if that Muslim Shiye philosophy took hold in the USA and Congress then enacts laws that women must wear hijabs, niqab veil burqas, jilbabs, or face covers to uphold Islam tradition? Whatever the philosophy or religion one group has, they have no right to impose it upon everyone else. We have reached the point where the United States is no longer a free society. There is no respect for human rights, which includes the right to be left alone to pursue your life, liberty, and happiness. What you earn is not respected and you can no longer try to build wealth for your family to leave behind, for even that is subject to confiscation under inheritance taxes.



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Economy

UI claims and GDP growth are historically bad: Now is not the time to cut benefits that are supporting jobs

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Last week 2 million workers applied for unemployment insurance (UI) benefits. Breaking that down: 1.2 million applied for regular state unemployment insurance (not seasonally adjusted), and 830,000 applied for Pandemic Unemployment Assistance (PUA). Many headlines this morning are saying there were 1.4 million UI claims last week, but that’s not the right number to use. For one, it ignores PUA, the federal program that is serving millions of workers who are not eligible for regular UI, like the self-employed. It also uses seasonally adjusted data, which is distorted right now because of the way Department of Labor (DOL) does seasonal adjustments.

Last week was the 19th week in a row that unemployment claims have been more than twice the worst week of the Great Recession. If you restrict this comparison just to regular state claims—because we didn’t have PUA in the Great Recession—this is the 19th week in a row that claims are more than 1.25 times the worst week of the Great Recession.

Republicans in the Senate just allowed the across-the-board $600 increase in weekly UI benefits to expire. They are proposing to (essentially) replace it with a $200 weekly payment. That $400 cut in benefits is not just cruel, it’s terrible economics. These benefits are supporting a huge amount of spending by people who would otherwise have to cut back dramatically. The spending made possible by the $400 that the Senate wants to cut is supporting 3.4 million jobs. If you cut the $400, you cut those jobs. This map shows the number of jobs that will be lost in each state if the extra $600 unemployment benefit is cut to $200.

Figure A

Today’s release of GDP data underscores how wrong it is to cut those benefits. Second-quarter GDP collapsed at the fastest rate on record—and the second quarter includes the employment bounce-back of May and June. And because we did not put the public health measure in place necessary to successfully reopen, the coronavirus has spiked, and the economic improvement we saw in May and June has stalled, if not reversed. Now is not the time to cut benefits that are supporting jobs.

But what about the potential work disincentive of the extra $600? After all, the additional payment means many people have higher income on unemployment insurance than they did from their prior job. It turns out that the concern about the disincentive effect has been massively overblown. In fact, rigorous empirical studies show that any theoretical disincentive effect has been so minor that it cannot even be detected. For example, a new study by Yale economists found no evidence that recipients of more generous benefits were less likely to return to work. A case in point: in May and June—with the $600 in place—7.5 million people went back to work. And, about 70% of likely UI recipients who returned to work were making more on UI than their prior wage. Further, there are 14 million more unemployed workers than job openings, meaning millions will remain jobless no matter what they do. Slashing the $600 cannot incentivize people to get jobs that are not there. Even further, many people are simply unable to take a job right now because it’s not safe for them or their family, or because they have care responsibilities as a result of the virus. Slashing the $600 cannot incentivize them to get jobs, it will just cause hardship.

Slashing the $600 will also exacerbate racial inequality. Due to the impact of historic and current systemic racism, Black and brown communities are suffering more from this pandemic, and have less wealth to fall back on. They will take a much bigger hit if the $600 is cut. This is particularly true for Black and brown women and their families, because in this recession, these women have seen the largest job losses of all.

Figure B combines the most recent data on both continuing claims and initial claims to get a measure of the total number of people “on” unemployment benefits as of July 25. DOL numbers indicate that right now, 33.8 million workers are either on unemployment benefits, have been approved and are waiting for benefits, or have applied recently and are waiting to get approved. But importantly, Figure B provides an upper bound on the number of people “on” UI, for two reasons: (1) Some individuals may be being counted twice. Regular state UI and PUA claims should be non-overlapping—that is how DOL has directed state agencies to report them— but some individuals may be erroneously counted as being in both programs; (2) Some states are likely including some back weeks in their continuing PUA claims, which would also lead to double counting (the discussion around Figure 3 in this paper covers this issue well).

Figure B

Figure B

Figure C shows continuing claims in all programs over time (the latest data are for July 11). Continuing claims are more than 28 million above where they were a year ago. However, the above caveat about potential double counting applies here too, which means the trends over time should be interpreted with caution.

Figure C

Figure C





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Economy

Silence is Stupid, Argument is Foolish

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When I was young, I never backed down in an intellectual argument.  Part of the reason, admittedly, was that I was starved for abstract debate.  Before the internet, anyone who wanted to talk ideas had to corner an actual human willing to do the same.  Another big reason, though, was that I didn’t want to look stupid.  A smart person always has a brilliant riposte, right?  And if you shut up, it must be because you’re stumped.

At this stage in my life, much has changed.  Public debates aside, I now only engage in intellectual arguments with thinkers who play by the rules.  What rules?  For starters: remain calm, take nothing personally, use probabilities, face hypotheticals head-on, and spurn Social Desirability Bias like the plague.  If I hear someone talking about ideas who ignores these rules, I take evasive action.  If cornered, I change the subject.

Why?  Because I now realize that arguing with unreasonable people is foolish.  Young people might learn something at the meta-level – such as “Wow, so many people are so unreasonable.”  But I’m long past such doleful lessons.  Note: “Being unreasonable” is not a close synonym for “Agrees with me.”  Most people who agree with me are still aggressively unreasonable.  Instead, being reasonable is about sound intellectual methods – remaining calm, taking nothing personally, using probabilities, facing hypotheticals head-on, spurning Social Desirability Bias, and so on.

In classic Dungeons & Dragons, characters have two mental traits: Intelligence and Wisdom.  The meaning matches everyday English: high-Intelligence characters are good at solving complex puzzles; high-Wisdom characters have a generous helping of common-sense.

Using the game to illuminate life: Running out of things in say in an argument is indeed a sign of low Intelligence, just as I held when I was a teenager.  A genius never runs out of rebuttals.  At the same time, however, joining a fruitless dispute is a sign of low Wisdom.  You have better things to do with your life than tell hyperventilating people all the reasons they’re wrong.  A really wise person won’t merely break off such exchanges, but stop them before they start – and get back to work on his Bubble.

Here, in short, is wisdom: Be not a hostage to your own intellectual pride.

P.S. How do you know if a person plays by the rules until you actually engage them?  Most obviously, watch how they argue with other people!  If that’s inadequate, give promising strangers a brief trial period, but be ready to disengage if things go south.

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