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THE ECONOMIC HIT GETS REAL — The titanic punch to the U.S. economy from the coronavirus will become even more clear this week as scores of bills come due for American citizens and businesses from rent and mortgages, to payrolls, credit cards, auto loans and much more. We will also get a pile of economic data, some useful, some definitely not. Beware March payrolls the most.
The Consumer Sentiment number out Tuesday morning is expected to drop from 130.7 to 110, a 40-month low, though some economists fear it could be much worse and has far further to fall. This is a month-long survey so some clearly weighed in before the worst of the lock downs began. A stronger reading plus any good news on bending the curve could lead to the best of a range of possible outcomes from bad to cataclysmic.
The bad — This would require the U.S. to start bending the curve sometime in April with people able to start returning to work by May or June. It would also require all the federal government’s rescue programs including direct payments to individuals and forgivable loans to small business to work quickly and seamlessly and stem the flood of layoffs.
Under this scenario, jobless claims should start to decline. The U.S. reports jobless claims Thursday. Consensus is a decline to 2.5 million after the record smashing 3.3 million last week. If the number is far higher – and it may be – this scenario will become even less likely. University of Minnesota’s Aaron Sojourner sees a 4.7 million claims number.
Under this scenario, we would get one terrible jobs number for April. Economic growth would drop only 5 or 10 percent in the second quarter and then start to rebound in the third and fourth as pent up demand is unleashed and people still have jobs.
The government reports the March jobs number on Friday. But they won’t mean much as the survey week occurred before the big wave of coronavirus lockdowns. Consensus is for a loss of just 100,000. The real hit will show up in the April numbers.
The very bad – The above seems fairly unlikely. Medical professionals mostly say it will take longer to bend the curve as new hot spots emerge from New Orleans to Detroit and Los Angeles. This would extend lockdowns into the summer.
The initial infusion of cash from the federal government would not be able to keep up. Jobless claims would continue to rise and the unemployment rate could quickly hit double digits. State budgets would also start cratering. And Consumer Sentiment would plunge, leading to a sharp pullback in spending. FWIW, MM thinks something along these lines is the most likely scenario.
The worst – The Doomsday scenario involves multiple recurring outbreaks in the U.S. and the death toll topping 1 million. This could require a total quarantine of the entire nation, perhaps for months.
That would destroy economic growth and lead to a depression in which the stock market collapses, entire industries go bankrupt and joblessness easily tops the Great Depression high of 24.9 percent. This scenario could also entail mass public unrest that could require a military response. Not likely. Not impossible.
GOOD TUESDAY MORNING — It’s MM’s birthday today. Perhaps we will celebrate by having an extra donut from the strategic reserve. Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver at [email protected] and follow her on Twitter @AubreeEWeaver.
More of the same. All coronavirus, all the time. Consumer Confidence at 10:00 a.m. expected to drop from 130.7 to 110, a 40-month low.
SPEAKIG OF BAD SCENARIOS — Morgan Stanley analysts now see “a 47% annualized decline in business investment in [the second quarter of 2020]. The monthly index in March moved down by 22.9 points, which represents a drop in magnitude of more than two standard deviations, to the lowest level since May 2009.”
CONGRESS WANTS TO STAY AWAY; MAY NOT BE ABLE TO — Our Burgess Everett, Heather Caygle, and John Bresnahan: “After passing the largest economic relief bill in history, Congress is now considering staying away from Washington for a month or more as the coronavirus makes even the routine act of legislating a dangerous risk for new transmissions.
MM SIDEBAR — If the coronavirus crisis gets worse and the economic data start to point to state budget collapses and massive increases in layoffs, this won’t be tenable.
PELOSI WANTS QUICK PHASE 4 — Our Sarah Ferris, Andrew Desiderio, and Marianne LeVine: “House Democrats are moving rapidly on ambitious plans for a fourth coronavirus relief package, with Speaker Nancy Pelosi eager to put her imprint on legislation that she says could be ready for a vote in the coming weeks.
“Pelosi told reporters Monday that Democrats are in the early stages of drafting another major bill that will not only shore up health systems and protect frontline health care workers but could include substantial investments in infrastructure.”
BIG RISE IN ANXIETY — Via new data from Fluent, Inc., a performance marketing company: “For its first installment of Fluent Pulse, Fluent conducted a survey of over 1.85 million opted-in U.S. adults.
“As of March 30, the survey revealed a 70% spike in overall nervousness over the last 20 days among Americans ages 18+. Of those, 46% of U.S. consumers surveyed reported being somewhat nervous or very nervous about the COVID-19 pandemic, compared to only 27% of consumers reporting this same sentiment two weeks prior.”
MORE HELP FOR GIG WORKERS — Our Kellie Mejdrich: “A leading House Republican called on … Trump’s administration to ensure that gig workers are eligible for equity compensation as part of the $2 trillion coronavirus response bill.”
HOW MANY CAN WORK AT HOME? — Univ. of Chicago white paper by Jonathan Dingel and Brent Neiman: “Our classification implies that 34 percent of U.S. jobs can plausibly be performed at home.
BIG COMPANIES MAY NOT QUALIFY — Our Victoria Guida and Theodoric Meyer: “Macy’s and Gap Inc. are furloughing most of their workers as their sales collapse — but they might not qualify for the massive backstop for companies that Congress just passed because their finances are so bad that their debt is rated as junk.
“The two iconic retailers and other companies running out of cash can’t tap into the new loan program backed by the Federal Reserve because it’s only available to corporations whose debt is considered safe by credit rating firms. Retailers, casinos and other industries are now lobbying the Treasury Department and the Fed”
BANKS PRESS ADMINISTRATION ON SMALL BUSINESS LOANS — Our Zachary Warmbrodt: “Banks are pleading for clear guidelines from the Trump administration about how to begin offering $350 billion in small business loans that Congress unlocked last week as part of the massive coronavirus economic rescue package.
“Private lenders will play a lead role in delivering the government-backed loans, which can be forgiven if businesses maintain their payroll. The scale of the effort is gigantic, amounting to 15 times what the Small Business Administration’s flagship “7(a)” loan program gave out in fiscal 2019.”
MORE ON THE DOOMSDAY SCENARIO — St. Louis Fed economist Miguel Faria-e-Castro analysis resulted “in 47.05 million people being laid off during this period. Summing to the initial number of unemployed in February, this resulted in a total number of unemployed persons of 52.81 million. Given the assumption of a constant labor force, this resulted in an unemployment rate of 32.1%.”
NEW TOOL TO TRACK CLAIMS — Per release: “[T]he Tax Foundation released a new interactive tool that allows users to see claims amounts by state”
USMCA DELAY? — Our Sabrina Rodriguez: “The Trump administration is not on track for the new North American trade pact to fully go into effect as planned on June 1, making it likely that automakers will have extra time to prepare to comply with the deal’s new rules, multiple people familiar with the talks told POLITICO.”
WALL STREET’S RALLY ROLLS ON — AP’s Stan Choe and Alex Veiga: “U.S. stocks climbed Monday, led by big gains for health care companies announcing developments that could aid in the coronavirus outbreak. The rally tacked more gains onto a recent upswing for the market, which is coming off the best week for the S&P 500 in 11 years.”
MNUCHIN: GREAT TIME FOR LONG-TERM INVESTORS TO PUT MONEY INTO U.S. — Reuters’ Andrea Shalal and Doina Chiacu: “U.S. Treasury Secretary Steven Mnuchin said on Monday that the U.S. economy would have a ‘rough quarter’ due to the coronavirus, but the underlying fundamentals were sound and it was a great time for long-term investors to put money into the United States.”
GOLDMAN EXEC BANNED — Our Kellie Mejdrich: “The SEC banned former Goldman Sachs executive Bryan Cohen from trading in stocks and from committing any potential violations of securities laws after he pleaded guilty to insider trading, the regulator announced today. The order — which was entered in court Wednesday — comes after federal officials took multiple legal actions against him.”
FED DATA POINTS TO ECONOMIC PAIN, WORRISOME EBBS IN INFLATION — WSJ’s Michael S. Derby: “The first wave of data capturing the front end of the new coronavirus crisis is dribbling in, and regional Federal Reserve Banks are tallying up the ugly picture. On Monday, the New York Fed launched a ‘Weekly Economic Index’ aimed at capturing where the economy is in near real time, and extrapolated historical levels based on past data.
“In its first outing, the index showed ‘developments in the past week saw the index fall to a level unseen since 2008,’ during the heat of the financial crisis. The report’s authors note that their index seeks to show what a given quarter’s activity would look like if it persisted for a year.”
ICYMI: WALL STREET QUIETLY TELLS COMPANIES NOT TO DRAW THEIR LOANS — Bloomberg’s Michelle F. Davis and Paula Seligson: “The biggest U.S. banks have been quietly discouraging some of America’s safest borrowers from tapping existing credit lines amid record corporate drawdowns on lending facilities, according to people familiar with the behind-the-scenes conversations.
“For Wall Street, it’s not an issue of liquidity so much as profitability. Investment-grade revolvers — especially those financed in the heyday of the bull market — are a low margin business, and some even lose money. The justification is that they help cement relationships with clients who will in turn stick with the lenders for more expensive capital-markets or advisory needs.”
POWELL LEADS FED INTO UNCHARTED WATERS — WSJ’s Nick Timiraos: “To meet the dislocation the coronavirus pandemic unleashed on the economy, Federal Reserve Chairman Jerome Powell has mobilized the central bank to move faster and farther than ever before. In the short weeks since financial markets seized up, Mr. Powell has placed the Fed on wartime footing. He took up the central bank’s playbook from the 2008 financial crisis and then some — cutting rates to near zero, purchasing huge quantities of government debt and, breaking a taboo, lending to American businesses.”
AS CORONAVIRUS SPREADS, COMMUNITY BANKS WATCH FOR FALLOUT — WSJ’s Orla McCaffrey: “The economic fallout of the novel coronavirus poses a new challenge for small banks across the country. Most of America’s banks are like Fisher National — woven into the local economy and a key source of credit for small businesses.”
JPMORGAN LOOKS TO RAISE $10B FOR ALTERNATIVE INVESTMENTS — Reuters: “JPMorgan Chase & Co’s alternative investments unit is looking to raise up to $10 billion to boost its spending power in the face of the coronavirus pandemic, a source familiar with the matter said on Monday. The bank plans to raise $5 billion to $10 billion in the next couple of months from clients including pension funds, sovereign-wealth funds, family offices and private banks, according to the source.”