Connect with us

Economy

Trump wants to reopen the economy. The restaurant and airline collapse shows that’s not easy. – Vox.com

Published

on


Politicians hoping to jolt the economy back to life might be in for some disappointment when they discover governors can let businesses reopen but they can’t force people to patronize them.

This week, governors in states like Florida and Georgia are moving to reopen bowling alleys, nail salons, and dine-in restaurants in an effort to get economic life moving again. And an organized campaign by conservative economic interests is underway to lift restrictions faster in more places.

This will be an experiment, of course, but the best available evidence casts doubt on the idea that enough customers will return to make it possible for small businesses to stay viable without additional government assistance.

For example, we know customers began abandoning America’s restaurants before they were ordered closed, that the handful of states that have avoided broad lockdown orders are still feeling economic pain, and that huge swaths of the economy that have not been shut down are nonetheless experiencing a precipitous decline in sales.

This restaurant in Los Angeles is selling groceries to stay afloat during the shelter-in-place order.
Amy Sussman/Getty Images

The problem is a question of fear. Americans fear spreading or contracting infection, so much so that they’ve overwhelmingly participated in social distancing measures. They tell pollsters by wide margins that they fear lifting those restrictions too soon much more so than too late. They’re willing to stay put even if it harms the economy.

They also fear economic hardship. That’s led prudent people, even those left relatively unharmed by the downturn so far, to delay nonessential purchases, like new cars, appliances, clothes, and other goods.

Whatever choices state officials make about opening things up, there’s not going to be a vibrant economy until real steps are taken to address those dual sources of fear.

The online reservation booking service OpenTable has thoughtfully provided the public with data on reservation volume in every city where they operate. The conclusion: There are some reckless people, but the typical human being is not that interested in risking her life for a dinner out.

This table shows, day by day, how much reservations and seated walk-ins fell from the day one year before in a range of domestic and global cities. And it demonstrates clearly that bookings were tumbling in all kinds of places before mayors and governors ordered their restaurants closed.

Estimates show a 100 percent decline in seated diners at restaurants in OpenTable’s network by the end of March, year-over-year.
OpenTable

In Atlanta, for example, Mayor Keisha Bottoms announced on March 19 that she would ban in-house dining at noon on the following day. By that time, OpenTable bookings had already fallen by over 90 percent.

This is not purely an American phenomenon. In Ireland, the national restaurant association itself called for a closure order on March 16, citing overcrowding in some pubs. The government swiftly took their advice, but OpenTable bookings in Dublin had already fallen by 71 percent.

When states start to allow restaurants to resume sit-down service, some customers will come back. But it seems many won’t.

The restaurant business is competitive. It operates on low margins, with new restaurants infamously prone to failure. And as with many businesses, the fixed costs of operating a restaurant are relatively high. You need to pay rent and utilities, and you need to cover other overhead like insurance and the interest on loans you took out to get the business started in the first place. Forcing these businesses to stay take-out only indefinitely will force them to close without government help, but letting them reopen for sit-down dining only marginally changes the calculus as long as customers are wary of actually showing up.

I asked a half-dozen restaurant owners from DC to Austin to central Pennsylvania if their businesses could survive the 20-30 percent decline in bookings that OpenTable was showing before the shutdown started. The only one who thought he could owns the building he operates in, giving him lower operating costs than a typical restaurateur. To save the industry, governments need to actually address the virus. Until that time comes we need to put restaurants on life support — simply letting them reopen empty isn’t going to work.

Beyond restaurants, the Trump administration’s relatively aggressive opening plan will still leave large segments of the economy largely shuttered.

In particular, Trump’s “Phase 1” plan — echoed by Republican governors — calls for white-collar workers to continue working remotely and calls for Americans as a whole to continue avoiding “non-essential” travel. Those are reasonable steps of caution that will continue to take a hammer to the economy. It can’t be fixed by reopening personal service businesses.

Hotel vacancy rates, for example, had already fallen by 25-50 percent as of mid-March while revenue per booked room fell by a third. This isn’t going to recover until people are told it’s safe to travel again. At $218 billion in annual revenue, the hotel industry is nearly triple the size of the combined hair and nail salon industries.

The $171 billion dollar airline industry is not currently shut down and thus can’t be “reopened” by fiat, but passenger volumes have fallen by 95 percent in the US. That’s an enormous loss to a large industry, plus secondary losses to related businesses like airport shops and rental car companies. As of a month ago, taxi companies in New York had lost two-thirds of their customers. And while New York City was unusually hard hit by the virus, it also has by far the lowest car ownership rate of any place in the country and thus the largest share of people who may have no better option than to hop into the back seat of a stranger’s car.

By the same token, the International Air Transport Association’s survey data indicates that just 14 percent of the public say they’re likely to resume flying as soon as restrictions are lifted — with 40 percent of the population saying they’re likely to wait six months or more.

Travel businesses, in other words, are hampered by people’s reasonable fears of infection and aren’t poised to come roaring back the moment restrictions come off.

Similarly, while keeping office workers home wherever possible is sensible, it has inevitable knock-on economic consequences. Downtown lunch spots have no customers if nobody is working downtown. People don’t need to get clothing dry cleaned as frequently if there are no business meetings. And office management companies will shed janitorial staff if there’s nobody to clean up after.

And with large segments of the economy ailing, simple lack of money is going to be an increasingly prominent problem.

Polling by CNBC in early April shows that 11 percent of Americans say they’ve lost their job during the pandemic and a further 30 percent have lost wages.

This is about to get worse. The Center on Budget and Policy Priorities predicts that state governments are facing a bigger hit to their budget than what we saw during the Great Recession of 2008-2009. Local government data is harder to come by, but it should be roughly in line with what states are seeing. When state and local governments lose revenue, they need to cut spending — furloughing workers or reducing benefits and widening the share of Americans who experience lost income. The same CNBC poll showed that 65 percent of Americans worry that their incomes will fall, and they should be worried.

What people do when their income falls— or when they fear that it might fall — is cut down on big-ticket purchases. They decide to forget about their plan to renovate the kitchen, and they hang on to their existing cars until they become completely unusable rather than upgrading.

This is what we’re seeing right now. New car sales are plummeting even though dealerships are still open to sell cars. Some of this could be the inconvenience or fear of going to a dealership, but dealers are trying hard to offer people good options for contactless home delivery and opportunities to test drive. Financing offers and other deals are excellent right now because inventory is piling up and dealers want to move it.

The problem is that one family’s spending is another family’s income. And while there’s nothing wrong with being prudent, a whole national cycle of prudence is self-defeating. One prudent family doesn’t buy a car, so the salesman doesn’t buy a fridge, so the appliance workers lose shifts. Declaring that we can all risk our lives to go to the movies next weekend doesn’t alter the basic dynamic.

What proponents of a quick reopening are hoping for is a better economy that works without further stimulus or intervention. That’s just not realistic.

Even plans to “reopen” involve keeping large swaths of the economy on ice. The travel sector isn’t currently shut down but it’s almost completely collapsed anyway. Reopened restaurants and personal services like hair and nail salons won’t get all their customers back as long as the virus is still circulating. Devastation to state and local budgets is already baked into the cake. And many people are losing income and paring back on unnecessary spending, prompting further rounds of lost income.

There’s no way out of this that doesn’t involve curing the dual fears of infection and income loss. The former requires real public health victories, not just vague assurances. And the latter requires much more in the way of financial support for ailing businesses, local governments, and households.


Support Vox’s explanatory journalism

Every day at Vox, we aim to answer your most important questions and provide you, and our audience around the world, with information that has the power to save lives. Our mission has never been more vital than it is in this moment: to empower you through understanding. Vox’s work is reaching more people than ever, but our distinctive brand of explanatory journalism takes resources — particularly during a pandemic and an economic downturn. Your financial contribution will not constitute a donation, but it will enable our staff to continue to offer free articles, videos, and podcasts at the quality and volume that this moment requires. Please consider making a contribution to Vox today.

Let’s block ads! (Why?)



Source link

Continue Reading

Economy

Guardians of the World Economy Stagger From Rescue to Recovery – Yahoo Canada Finance

Published

on


Guardians of the World Economy Stagger From Rescue to Recovery

View photos

(Bloomberg) — The world’s governments and central banks are shifting from rescue to recovery mode as the deepest slump since the Great Depression shows signs of bottoming out.

After rolling out trillions of dollars worth of measures to prevent their economies and markets from collapsing, they are now doubling down with even more spending to backstop a recovery as coronavirus lockdowns ease. In what counts for good news these days, Bloomberg Economics’ global GDP growth tracker showed economies contracted at an annualized rate of 2.3% in May, less than the 4.8% slump in April.

“Policy makers are moving from triage to recovery,” said Deutsche Bank Securities Chief Economist Torsten Slok. “They are realizing that more fiscal support will be needed to households and small businesses to prevent this liquidity crisis from turning into a solvency crisis.”

The new wave of stimulus has both governments and central banks moving in sync to continue flooding lenders, markets and companies with cheap credit at an unprecedented pace.

The European Central Bank last week expanded its asset purchases by 600 billion euros ($677 billion) to 1.35 trillion euros, and extended them until at least the end of June 2021. And Germany’s government agreed another 130 billion-euro fiscal stimulus push and said it will back a proposed new 750 billion-euro European Union recovery fund.

“Action had to be taken,” ECB President Christine Lagarde said in a press conference.

It’s a similar story in Asia.

Japan is planning another $1.1 trillion worth of spending in its biggest splurge yet and the central bank in May called an emergency meeting to roll out 30 trillion yen ($274 billion) of loan support for small businesses.

China last week unveiled another 3.6 trillion yuan ($508 billion) in spending and South Korea’s 76 trillion won ($63 billion) ‘New Deal’ fiscal package is its largest to date.

In the U.S., lawmakers continue to debate extra fiscal stimulus and the Federal Reserve, which meets on June 10, has just launched a new Main Street Lending Program, the latest in trillions of support it has already poured into the economy and markets.

While the Fed is unlikely to signal any moves when its officials gather this week, many economists expect it to harden its commitment to easy monetary policy later in the year and perhaps even start pursing a Japan-style campaign to control long-term borrowing rates.

The latest U.S. jobs numbers give some hope that the stimulus unleashed so far is beginning to kick in. A record 2.5 million workers were added by employers during May while unemployment declined to 13.3%, wrong footing economists who had forecast widespread job losses.

Read more: Economists Have Biggest Miss Ever in U.S. Jobs-Report Shocker

To be sure, there’s far from consensus that the latest wave of support will be enough to get growth back to where it was at the start of the year. Some of the steps being taken are merely to replace existing policies as they start to expire.

“It seems clear already approved packages are perceived to be not enough,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA.

There are other concerns that monetary policy can only do so much to revive growth before it loses its potency.

“How does the Fed actually get money to millions and millions of households and small businesses, that is difficult to do operationally,” former New York Federal Reserve Bank President William Dudley told Bloomberg Television.

“It’s much easier to intervene in the capital markets where the Fed can rely on counterparties, primary dealers and others,” Dudley said. “It is much more difficult to lend one by one to millions of different entities.”

Another risk is a return to austerity, even if it seems unlikely now. JPMorgan recently predicted a fiscal thrust of 3.3% of GDP this year and 1.5% drag next year.

U.S. senators have put the brakes on a $3 trillion fiscal package that was approved by lower house lawmakers. China’s government has ruled out a return to the kind of large scale stimulus it rolled out after the global financial crisis, preferring to keep a lid on rising debt.

Still, because the crisis meant economies were forced into shutdown, much of the emergency response so far has been less about driving growth and more about avoiding total collapse. It’s that dynamic which is leaving governments with little option but to borrow harder.

“We shouldn’t look at the positive immediate growth impact of the opening up process as being the rate of growth that may last,” said David Mann, chief economist for Standard Chartered Plc.

Creating jobs will be mission critical to cementing any upswing. That will need support for firms to retrain employees, incentives to hire older workers and for governments to continue with wage subsidies. More than one in six people have stopped working since the onset of the crisis, according to the International Labour Organization, which in April estimated more than 1 billion workers were at high risk of a pay cut or losing their job.

“A faster job market recovery will speed up the economic healing and reduce the risk from widening income inequality and social stress,” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte.

Ultimately, the rescue of economies will go well beyond quantitative solutions and into the realm of story telling too, as policy makers will need to inject confidence back into wary consumers and executives, said Stephen Jen, who runs hedge fund and advisory firm Eurizon SLJ Capital in London.

“Human psychology is the same and is now as important as the mechanics of delivering the fiscal stimuli themselves,” he said.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For more articles like this, please visit us at bloomberg.com” data-reactid=”58″>For more articles like this, please visit us at bloomberg.com

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Subscribe now to stay ahead with the most trusted business news source.” data-reactid=”59″>Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.

Let’s block ads! (Why?)



Source link

Continue Reading

Economy

Guardians of the world economy stagger from rescue to recovery – BNNBloomberg.ca

Published

on


The world’s governments and central banks are shifting from rescue to recovery mode as the deepest slump since the Great Depression shows signs of bottoming out.

After rolling out trillions of dollars worth of measures to prevent their economies and markets from collapsing, they are now doubling down with even more spending to backstop a recovery as coronavirus lockdowns ease. In what counts for good news these days, Bloomberg Economics’ global GDP growth tracker showed economies contracted at an annualized rate of 2.3 per cent in May, less than the 4.8-per-cent slump in April.

“Policy-makers are moving from triage to recovery,” said Deutsche Bank Securities Chief Economist Torsten Slok. “They are realizing that more fiscal support will be needed to households and small businesses to prevent this liquidity crisis from turning into a solvency crisis.”

The new wave of stimulus has both governments and central banks moving in sync to continue flooding lenders, markets and companies with cheap credit at an unprecedented pace.

The European Central Bank last week expanded its asset purchases by 600 billion euros (US$677 billion) to 1.35 trillion euros, and extended them until at least the end of June 2021. And Germany’s government agreed another 130 billion-euro fiscal stimulus push and said it will back a proposed new 750 billion-euro European Union recovery fund.

“Action had to be taken,” ECB President Christine Lagarde said in a press conference.

It’s a similar story in Asia.

Japan is planning another US$1.1 trillion worth of spending in its biggest splurge yet and the central bank in May called an emergency meeting to roll out 30 trillion yen (US$274 billion) of loan support for small businesses.

China last week unveiled another 3.6 trillion yuan (US$508 billion) in spending and South Korea’s 76 trillion won (US$63 billion) ‘New Deal’ fiscal package is its largest to date.

In the U.S., lawmakers continue to debate extra fiscal stimulus and the Federal Reserve, which meets on June 10, has just launched a new Main Street Lending Program, the latest in trillions of support it has already poured into the economy and markets.

While the Fed is unlikely to signal any moves when its officials gather this week, many economists expect it to harden its commitment to easy monetary policy later in the year and perhaps even start pursing a Japan-style campaign to control long-term borrowing rates.

The latest U.S. jobs numbers give some hope that the stimulus unleashed so far is beginning to kick in. A record 2.5 million workers were added by employers during May while unemployment declined to 13.3 per cent, wrong footing economists who had forecast widespread job losses.

To be sure, there’s far from consensus that the latest wave of support will be enough to get growth back to where it was at the start of the year. Some of the steps being taken are merely to replace existing policies as they start to expire.

“It seems clear already approved packages are perceived to be not enough,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA.

There are other concerns that monetary policy can only do so much to revive growth before it loses its potency.

“How does the Fed actually get money to millions and millions of households and small businesses, that is difficult to do operationally,” former New York Federal Reserve Bank President William Dudley told Bloomberg Television.

“It’s much easier to intervene in the capital markets where the Fed can rely on counterparties, primary dealers and others,” Dudley said. “It is much more difficult to lend one by one to millions of different entities.”

Another risk is a return to austerity, even if it seems unlikely now. JPMorgan recently predicted a fiscal thrust of 3.3 per cent of GDP this year and 1.5 per cent drag next year.

U.S. senators have put the brakes on a US$3-trillion fiscal package that was approved by lower house lawmakers. China’s government has ruled out a return to the kind of large scale stimulus it rolled out after the global financial crisis, preferring to keep a lid on rising debt.

Still, because the crisis meant economies were forced into shutdown, much of the emergency response so far has been less about driving growth and more about avoiding total collapse. It’s that dynamic which is leaving governments with little option but to borrow harder.

“We shouldn’t look at the positive immediate growth impact of the opening up process as being the rate of growth that may last,” said David Mann, chief economist for Standard Chartered Plc.

Creating jobs will be mission critical to cementing any upswing. That will need support for firms to retrain employees, incentives to hire older workers and for governments to continue with wage subsidies. More than one in six people have stopped working since the onset of the crisis, according to the International Labour Organization, which in April estimated more than 1 billion workers were at high risk of a pay cut or losing their job.

“A faster job market recovery will speed up the economic healing and reduce the risk from widening income inequality and social stress,” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte.

Ultimately, the rescue of economies will go well beyond quantitative solutions and into the realm of story telling too, as policy makers will need to inject confidence back into wary consumers and executives, said Stephen Jen, who runs hedge fund and advisory firm Eurizon SLJ Capital in London.

“Human psychology is the same and is now as important as the mechanics of delivering the fiscal stimuli themselves,” he said.

Let’s block ads! (Why?)



Source link

Continue Reading

Economy

El-Erian: Here's a 'nightmare scenario' for the U.S. economy – Yahoo Canada Finance

Published

on



<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The big risk with the latest U.S. jobs report is if it turns out to be a “head fake” says Mohamed El-Erian, chief economic advisor at Allianz.” data-reactid=”16″>The big risk with the latest U.S. jobs report is if it turns out to be a “head fake” says Mohamed El-Erian, chief economic advisor at Allianz.

“That’s the nightmare scenario,” El-Erian told Yahoo Finance after the US unexpectedly added 2.5 million jobs in May as states started re-opening and easing COVID-19 shelter in place measures.

“The big risk … is that this is a head fake, a major head fake that we are picking up the impact of both data distortions, and policy distortions,” said El-Erian.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="May’s employment report has economists scratching their heads. They were expecting the US to lose 7.5 million jobs. Instead it gained jobs, and the unemployment rate, ticked lower to 13.3%.” data-reactid=”19″>May’s employment report has economists scratching their heads. They were expecting the US to lose 7.5 million jobs. Instead it gained jobs, and the unemployment rate, ticked lower to 13.3%.

“No one was looking for an uptake in jobs.” said El-Erian. “It may be that the economy has picked up in a major way. That’s the hope. And that’s certainly what the market has embraced.”

“Or it may be two other things: that government policies were very effective in reducing those who were officially unemployed. Or it may be that the data is very, very noisy,” he added.

NEW YORK, NY - APRIL 29: Mohamed El-Erian, Chief Economic Adviser of Allianz appears on a segment of "Mornings With Maria" with Maria Bartiromo on the FOX Business Network at FOX Studios on April 29, 2016 in New York City. (Photo by Rob Kim/Getty Images)
NEW YORK, NY – APRIL 29: Mohamed El-Erian, Chief Economic Adviser of Allianz appears on a segment of “Mornings With Maria” with Maria Bartiromo on the FOX Business Network at FOX Studios on April 29, 2016 in New York City. (Photo by Rob Kim/Getty Images)

“What is really striking is if you look at continuing claims, they went up, not down. So every other indicator you look at suggest that the labor market is not as healthy as these numbers,” said El-Erian.

If indeed the report is a “head fake,” El-Erian warns “the political process may have moved away from relief and repair.”

“We’ve got to understand these numbers better, and we’ve got to continue with the message to Congress that there is still a big hole we find ourselves in, even if you believe these numbers,” he added.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="President Trump on Friday signed legislation lengthening the PPP loan program, aimed at helping small businesses keep workers on their payroll.” data-reactid=”36″>President Trump on Friday signed legislation lengthening the PPP loan program, aimed at helping small businesses keep workers on their payroll.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The jobs report sent stocks soaring on Friday, with the Dow (^DJI) gaining more than 3%, and the Nasdaq (^IXIC) rallied to a record high.” data-reactid=”37″>The jobs report sent stocks soaring on Friday, with the Dow (^DJI) gaining more than 3%, and the Nasdaq (^IXIC) rallied to a record high.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Federal Reserve’s actions to combat the economic fallout of COVID-19, including backing corporate debt markets, have helped the markets rally reminiscent of the 2009 rebound.” data-reactid=”38″>The Federal Reserve’s actions to combat the economic fallout of COVID-19, including backing corporate debt markets, have helped the markets rally reminiscent of the 2009 rebound.

“In the equity market, there’s nothing more comforting than the notion that someone with a printing press in the basement and an unlimited ability and willingness to buy is your backstop,” said El-Erian.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="
"What we want is fundamentals to improve and validate asset prices. That’s how this is an orderly outcome. If that doesn’t happen at some point, fundamentals will assert themselves,” he added.” data-reactid=”40″>
“What we want is fundamentals to improve and validate asset prices. That’s how this is an orderly outcome. If that doesn’t happen at some point, fundamentals will assert themselves,” he added.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read more:” data-reactid=”41″>Read more:

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Find live stock market quotes and the latest business and finance news” data-reactid=”48″>Find live stock market quotes and the latest business and finance news

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For tutorials and information on investing and trading stocks, check out&nbsp;Cashay” data-reactid=”49″>For tutorials and information on investing and trading stocks, check out Cashay

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Follow Yahoo Finance on&nbsp;Twitter,&nbsp;Facebook,&nbsp;Instagram,&nbsp;Flipboard,&nbsp;LinkedIn, and&nbsp;reddit.” data-reactid=”50″>Follow Yahoo Finance on TwitterFacebookInstagramFlipboardLinkedIn, and reddit.

Let’s block ads! (Why?)



Source link

Continue Reading

Trending