Newsletter: The Recovery Is Losing Momentum

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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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