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U.S. stocks climbed on Wednesday, following a rally on Tuesday after Treasury Secretary Steven Mnuchin suggested to lawmakers that the Trump administration might be open to a stimulus package as large as $1.5 trillion. The S&P 500 rose 1.5 percent to set another record. It was the index’s best day since July 6.
The Dow Jones Industrial index closed above 29,000 for the first time since February, though it is still more than 450 points off its record high. President Trump crowed about the index’s performance on Twitter: “You are so lucky to have me as your President 😉”
Shares of giant technology companies helped lead the gains in the S&P 500, where the large weighting of such stocks gives them outsized influence. Twitter was one of the best-performing stocks of the day, rising more than 6 percent, Alphabet rose nearly 4 percent and Facebook rose by more than 2 percent.
But other more defensive sectors, such as utilities and health care, also fared well, generating the highest percentage gains of any of the S&P 500’s 11 sectors. Energy was the only S&P sector to decline.
The ADP report on private sector payrolls, which was released Wednesday morning, showed that hiring increased in August from the prior month but fell below what economists had expected. Investors are more focused on the Labor Department’s monthly jobs report, which is set to be released on Friday.
The downbeat economic data seemed to drive increased expectations from investors that more support from the Federal Reserve, in the form of lower long-term interest rates, would be coming. The yield on the 10-year Treasury note fell to its lowest level in more than a week, at 0.65 percent.
European markets were also higher, with benchmark indexes up more than 1 percent. Asian markets ended the day broadly lower, a trend defied by Japan’s Nikkei, which closed up about half a percent.
Investors were encouraged by fresh economic data from around the world that signaled a recovery from the devastation of the pandemic was underway. U.S. manufacturing data released Tuesday showed that new orders surged in August. A report from the eurozone Tuesday also showed that manufacturing activity had increased for the second straight month.
The amount of U.S. government debt will nearly outpace the size of the nation’s economy in the 2020 fiscal year, the Congressional Budget Office said on Wednesday, a level not reached since the immediate aftermath of World War II and a direct result of the pandemic recession.
The federal budget deficit is expected to reach $3.3 trillion for the fiscal year, which ends on Sept. 30, the budget office said. Total debt held by the public is expected to reach an estimated 98 percent of the size of the economy — gross domestic product — for the year. It falls just short of equaling the size of the economy: The last fiscal year when the amount of federal debt was larger than the sum of the nation’s annual economic output was in 1946.
The budget office now expects the debt to exceed the size of the economy in fiscal year 2021. By 2023, it said on Wednesday, it expects the debt as a share of the economy to reach its highest level in American history, surpassing the World War II era.
The United States appeared to have passed the debt milepost in June, when the total debt exceeded the size of a year’s worth of economic output.
The pandemic recession plunged the economy into its sharpest quarterly contraction in growth in nearly 75 years, ballooning the deficit in the process. With millions out of work and businesses shuttered, tax revenues fell for the federal government, along with states and municipalities. Congress and President Trump moved quickly to approve more than $3 trillion in new federal spending to help businesses and individuals through the abrupt slowdown in economic activity. All of those factors converged to send deficits — which had grown steadily even in the expansion years under Mr. Trump before the crisis hit — soaring.
While most economists think the federal government should not be worried about deficit spending in the midst of a severe downturn, concerns over the amount of federal borrowing have hindered bipartisan negotiations over another round of economic assistance this fall. Democrats started talks pushing for a more-than $3 trillion package. Republicans countered with about $1 trillion, citing, in part, concerns over the rising amounts of debt.
But even many deficit hawks in Washington, while alarmed by the swift rise in debt, continue to urge lawmakers to spend more to stimulate the recovery.
“I think we should think and worry about the deficit an awful lot,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget in Washington, “and we should proceed to make it larger” this fall.
The Federal Reserve’s regular survey of its nationwide business contacts showed that the pandemic continues to weigh on regional economies — and signaled that in many places, the pace of the post-lockdown rebound began to slow by late August.
While vehicle sales, tourism and retail had been boosting consumer spending, “many Districts noted a slowing pace of growth in these areas, and total spending was still far below pre-pandemic levels,” according to the so-called “Beige Book” report for August 2020. “Commercial construction was down widely, and commercial real estate remained in contraction.”
Housing was a bright spot, the report said, but the agriculture and energy industries continued to struggle. Continued uncertainty driven by the pandemic “was a theme echoed across the country.” Employment was rising, but temporary layoffs were also turning permanent in many places.
In the New York region, “while more manufacturers said they anticipated staff increases than reductions, the reverse was true among service sector businesses — especially those in the information, transportation, and warehousing industries.”
Even as jobs disappeared in some areas and the pace of labor market improvement slowed in others, businesses complained about struggling to hire. Some cited expanded unemployment benefits, which lapsed at the end of July, along with day care and school closings that kept parents at home.
“A lack of access to day care and unwillingness of some working parents to send their children to day care contributed to a reduced pool of candidates,” according to contacts in the Boston Fed’s district. “By contrast, one contact saw increased applicants, citing recent layoffs and furloughs as driving factors.”
United Airlines said Wednesday that it expects to furlough 16,370 employees starting Oct. 1, when federal restrictions on job cuts that were a condition of government aid end.
The announcement, which comes a week after a similar one from American Airlines, could put further pressure on Congress and the Trump administration to renew the $25 billion in stimulus funding the federal government provided to passenger airlines in March. A union-led effort to extend that funding has received bipartisan support, but lawmakers and the administration are at an impasse over further pandemic relief.
“To be clear, an extension would be the one thing that would prevent involuntary furloughs on October 1 and hopefully delay any potential impact on employees until early 2021,” the airline told employees on Wednesday. Tens of thousands of United employees have already contacted their representatives to renew the funding and the airline encouraged others to do so.
The Oct. 1 cut would affect nearly 7,000 flight attendants, nearly 3,000 pilots and thousands of others who work in maintenance, airport operations and other roles. United had warned 36,000 employees in July that they could be subject to the furlough, but that figure was greatly reduced in large part because thousands of employees agreed to take buyouts, early retirement or temporary leave.
Airlines have introduced a broad range of voluntary programs to offset costs and save jobs. Some United employees who work in airport operations, at contact centers or in maintenance, for example, have been offered a year of leave during which they will receive health benefits and a quarter of their salary. Flight attendants have been able to sign up for extended leave with health benefits with the right to return to work if flights are available. In both cases, the airline would be able to call the employees back when demand recovers.
Last week, American said that it expects to cut as many as 19,000 workers starting Oct. 1. Delta Air Lines has said it may need to furlough nearly 2,000 pilots, even after nearly as many signed up for early retirement. Southwest Airlines has said it expects to avoid broad cuts, at least for the rest of the year.
The number of people flying is down about 70 percent from a year ago and isn’t expected to recover substantially until a coronavirus vaccine is widely available. The World Travel & Tourism Council, an industry group, said on Wednesday that the devastating drop in international travel would cost the U.S. economy $155 billion this year.
Ford Motor said Wednesday that it planned to eliminate about 1,400 salaried jobs in North America by the end of the year to lower costs.
The automaker told workers that it would offer incentives to encourage employees to leave voluntarily but would resort to layoffs if not enough people took buyout packages.
“We are in a multiyear process of making Ford more fit and effective around the world,” Kumar Galhotra, the president of the company’s Americas and international markets group, said in an email to employees.
The job cuts come as Ford replaces its top executive. Its chief executive for the last three years, Jim Hackett, is set to retire in October, and will be succeeded by James Farley, the chief operating officer.
Mr. Hackett has worked to streamline Ford, but so far has achieved mixed results. He is credited with revamping Ford’s model line, developing a battery-powered Mustang sport-utility vehicle and a new line of Bronco sport-utility vehicles. But the company’s financial performance has lagged other big automakers and its share price has languished in the single digits for most of the last two years.
After almost 30 years of economic growth, Australia officially fell into recession after its economy shrank 7 percent in the second quarter, the government said on Wednesday.
The drop in quarterly G.D.P. is the largest since record-keeping began in 1959, Michael Smedes, head of national accounts at the Australian Bureau of Statistics, said in a statement.
Restrictions that were imposed in March during the virus’s first surge greatly reduced domestic spending on transportation, hotels and restaurants, while border bans hit the tourism and education industries.
Australia’s second-most populous state, Victoria, remains under lockdown as it fights a surge that was driven by returning travelers. Officials on Wednesday extended Victoria’s state of emergency for six months, a designation that gives them broad powers to enact virus-related restrictions as needed.
In the end, more than $150 billion in stimulus packages could not ward off a recession.
“Today’s devastating numbers confirm what every Australian knows: that Covid-19 has wreaked havoc on our economy and our lives like nothing we have ever experienced before,” Josh Frydenberg, the country’s treasurer, said on Wednesday.
The new data marked a sobering end to what had once seemed an endless boom driven by immigration, rising trade with Asia and careful monetary policy. More than a million Australians were unemployed in July, and the unemployment rate of 7.5 percent was the worst in 22 years.
“The road ahead will be long,” Mr. Frydenberg said. “The road ahead will be hard. The road ahead will be bumpy.”
Australia has recorded 663 coronavirus deaths and more than 25,000 cases, according to a New York Times database.
The British economy could suffer longer-term damage and a slower recovery than the Bank of England is currently forecasting, two of its policymakers said on Wednesday.
Speaking to a parliamentary committee, the central bankers warned that the economy, which suffered its worst recession since official record-keeping began in the 1950s, faced bigger risks than current estimates anticipate.
“Once we’re on the other side of the Covid shock, we think the level of G.D.P. will be permanently about 1.5 percent lower,” Dave Ramsden, the deputy governor of the central bank, said of the current forecast. “For me, all the risks are really that that number will be greater than 1.5 percent.”
The bank’s forecast already anticipates some economic mismatch lasting a long time, meaning that some people who lose their jobs will struggle to find new employment because they won’t have the right skills. But there could be other impacts that have not yet been accounted for, such as a lack of investment in commercial real estate as more people work from home, or an increase in spending on machinery and other equipment in the retail sector as it pivots to online shopping at the expense of workers’ wages.
The central bank expects the output gap — the difference between the actual output of the economy and what it has the potential to achieve — to close in about a year and a half. “I think that’s quite quick,” said Gertjan Vlieghe, a member of the central bank’s monetary policy committee.
He said that if unemployment stayed high while the economy tried to undergo a structural change, more monetary and fiscal stimulus would be needed to get the economy “running at full capacity.”
Macy’s, the biggest department store company in the United States, on Wednesday reported another significant slide in quarterly sales, but struck an upbeat tone, saying that the performance was “stronger than anticipated.”
The New York-based retailer, which also owns Bloomingdale’s and Bluemercury, said that sales fell 36 percent, to $3.6 billion, in the quarter ending Aug. 1. It reported a net loss of $431 million. Like many other retailers, Macy’s said that its digital sales grew, by 53 percent, in the quarter, while in-store sales plunged 61 percent.
Macy’s said it was not providing a full-year forecast as uncertainty persisted, but it expected its comparable sales to drop by the “low- to mid-20s” during the fall. On an earnings call, the retailer said that it expected at least 40 percent of its total sales to be digital going forward, up from 25 percent last year.
“The store remains a very, very important component of our brands,” said Jeff Gennette, Macy’s chief executive. But as the pandemic persists, customers are not using the stores to browse, he said. “They’re mission-based: They’re coming in for a transaction, they’re lingering less time in stores, and they’re buying at a higher conversion rate.”
Macy’s is a linchpin of the mall, and its results provide a window into how and where Americans are shopping. Dresses, men’s clothing and formal shoes, and luggage have been weak categories, the company said on the call, as it observed a big shift into purchases of activewear and athletic footwear. The retail giant also noted “disproportionately strong” performance in luxury categories like fragrances and diamonds and said its strongest business was in homewares, beauty and certain accessories categories.
The coronavirus outbreak and widespread store closures drove Macy’s sales down by 45 percent to about $3 billion in the first quarter, which ended May 2, and the retailer posted a net loss of $3.6 billion. It said in June that it was cutting 3,900 corporate and management positions.
Macy’s staggered the release of its dismal first-quarter results across three months. It has continued to struggle as consumers are especially slow to return to enclosed malls.
In February, before the virus began spreading across the U.S., Macy’s had announced plans to close at least 125 stores in the next three years and cut about 2,000 jobs. Those closings are expected to leave the company with about 400 locations.
The retailer, one of the most iconic destinations during the holiday season, said Wednesday that it was preparing to start promotions earlier, create a safe store environment and give customers the option to buy items in advance, which they can retrieve curbside or in stores.
Treasury Secretary Steven Mnuchin says “there is more work to be done” to help the U.S. economy recover from its pandemic-induced recession. But he and Democrats disagree on the scale of the problem, and the scope of the solution, making it hard to predict when — or if — lawmakers will strike a deal on another economic stimulus package, today’s DealBook newsletter explains.
Mr. Mnuchin and House Democrats painted different pictures of the economy at a congressional hearing yesterday. While the Treasury secretary said the economy was “doing great” relative to the worst-case pandemic situations, the House majority whip, Jim Clyburn, Democrat of South Carolina, warned of a “K-shaped” recovery, in which the wealthy bounce back and the rest lag behind.
Who’s right? A number of economic reports are due this week that could shed some light on the course of the recovery. Today, the Congressional Budget Office will release an update to its 10-year economic projections. On Thursday, weekly jobless claims are expected to show a large decline, due mostly to methodological changes. On Friday, the monthly report on jobs is predicted to show the unemployment rate falling to single digits for the first time during the pandemic, to a level roughly equal to the peak reached during the global financial crisis.
The weekly “recovery tracker” assembled by Oxford Economics, which mashes together a range of high-frequency statistics on consumer demand, employment, financial markets, health, mobility and production, reckons that the U.S. economy is now operating around 80 percent of normal, with muted improvement in recent weeks.
Is help on the way? Mr. Mnuchin told the House Select Subcommittee on the Coronavirus Crisis yesterday that he would call House Speaker Nancy Pelosi “right after the hearing” to discuss the next stimulus bill. They spoke for more than 30 minutes, but Ms. Pelosi said afterward that there were “serious differences understanding the gravity of the situation” between the White House and Democrats.
Starting this week, the Labor Department will change its approach to seasonal adjustment for weekly unemployment claims. The Times will be changing the way we report the numbers, too, to emphasize the non-seasonally adjusted figures going forward. Ben Casselman explains the change:
UPDATE: Got some clarity on this. @USDOL says initial claims for 8/22 will NOT be revised to reflect the new adjustment methodology. So we should expect to see a big, artificial drop in claims from 8/22 to 8/29. https://t.co/IievTvgw9v
— Ben Casselman (@bencasselman) September 1, 2020
The key points:
• This change should make the seasonally adjusted numbers more accurate.
• The Labor Department is not revising prior data, which means the new seasonally adjusted numbers will not be comparable with the old ones.
• If you want to compare over time, use non-seasonally adjusted data.
Seasonal adjustment is meant to account for regular, predictable patterns in layoffs. Take the first week of June, for example: Every year, jobless claims spike because thousands of public school employees get laid off.
The seasonal adjustment formula “knows” this, and expects claims to rise around 15 percent the first week of June each year. An increase of less than 15 percent would show up as a drop in claims.
This year, though, the absolute level of claims is way higher than normal because of the pandemic. The formula once again expected claims to rise around 15 percent, but this year 15 percent was nearly 250,000 claims.
As it happens, unadjusted filings fell by about 60,000 that week this year. The seasonal formula, expecting a huge increase, reported a drop of 330,000 seasonally adjusted claims.
The new adjustment methodology should fix this. Instead of looking at historical patterns as percentage changes, it will look at actual levels of change. So in June, it would have expected an increase of around 30,000, and the seasonally adjusted figure would have shown a dip of around 90,000.
Virgin Atlantic’s $1.6 billion rescue deal is set for completion this week after a London judge sanctioned the airline’s restructuring plan in a court hearing on Wednesday, Reuters reported. A procedural court hearing is scheduled for Thursday in the United States so that the deal can be recognized there, but the judge said that the court order was not conditional on the U.S. process.
The Trump administration issued an order on Tuesday barring evictions of most renters in the country for the rest of the year as the nation grapples with the coronavirus pandemic. The order, put forward by the Centers for Disease Control and Prevention, said the action was needed to avoid having renters lose their homes and wind up in shelters or other crowded living conditions, compounding the crisis. To apply for the new moratorium, tenants would have to attest to a substantial loss of household income, the inability to pay full rent and best efforts to pay partial rent. Tenants would also need to stipulate that eviction would be likely to leave them homeless or force them to live with others at close quarters.
AMC Entertainment announced that it would reopen roughly 140 additional theaters by Sept. 4, bringing a total of 70 percent of its movie theaters in the United States back into operation. Shares of the company jumped nearly 10 percent after-hours following the announcement Tuesday afternoon. The majority of the theaters will reopen on Sept. 3, the same day that Christopher Nolan’s “Tenet” comes out. Theater executives are hoping the $200 million thriller will draw crowds of viewers. But it remains to be seen whether people will want to sit in an enclosed space next to other moviegoers.