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U.S. economy starts long recovery as retail sales post record jump – The Globe and Mail

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U.S. retail sales increased by the most on record in May after two straight months of sharp declines as businesses reopened, offering more evidence that the recession triggered by the COVID-19 pandemic was over or drawing to an end.

The report from the Commerce Department on Tuesday followed news early this month that the economy created 2.5 million jobs in May. Layoffs are also ebbing and manufacturing activity is improving, though production remains at very low levels.

The surge in retail sales last month recouped 63 per cent of March and April’s decreases. But the journey to recovery could be long and difficult as some parts of the country are experiencing a resurgence of COVID-19 infections. In addition, enhanced federal government unemployment checks will run out in July.

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Federal Reserve Chair Jerome Powell told U.S. lawmakers on Tuesday that “until the public is confident that the disease is contained, a full recovery is unlikely.”

Retail sales jumped 17.7 per cent last month, the biggest advance since the government started tracking the series in 1992. Sales dropped a record 14.7 per cent in April. Economists polled by Reuters had forecast retail sales would rise 8 per cent in May.

Retail sales fell 6.1 per cent on a year-on-year basis in May. Even with May’s surge, sales were still about 8 per cent below their February level, leaving consumer spending and the economy on track for their biggest contraction in the second quarter since the Great Depression. The economy slipped into recession in February.

“The economy and retail sales have hit the bottom in May and we have a V-shaped first stage of recovery,” said Sung Won Sohn, a business economics professor at Loyola Marymount University in Los Angeles. “However, it will take quite some time to get back to anywhere near the levels of retail sales and economic activity we enjoyed around the turn of the year.”

The reopening last month of nonessential businesses that were shuttered in mid-March to slow the spread of COVID-19 has seen Americans flocking to car dealerships and spending more on gasoline, apparel and at restaurants.

Though nearly 20 million people have lost their jobs to the pandemic, record savings and the government’s historic fiscal package of nearly $3 trillion are providing a cushion for consumers through one-time $1,200 checks and generous unemployment benefits. The unprecedented economic upheaval saw personal savings increasing at a record $337 billion in April and the saving rate hitting an all-time high of 33 per cent.

MANUFACTURING STABILIZING

The recovery in retail sales last month was led by a 44.1 per cent acceleration in sales at auto dealerships.

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Receipts at service stations increased 12.8 per cent. Sales at electronics and appliance stores soared 50.5 per cent. Receipts at clothing stores rebounded 188 per cent last month. Still, clothing store sales remained about 63 per cent below their February level.

Sales at furniture stores soared 89.7 per cent. Receipts at restaurants and bars advanced 29.1 per cent. Spending at hobby, musical instrument and book stores vaulted 88.2 per cent. All these categories had suffered record declines in sales in March and April.

Online and mail-order retail sales rose 9.0 per cent. Sales at building material stores rose 10.9 per cent.

The surge in demand for motor vehicles helped to lift manufacturing production 3.8 per cent in May, a separate report from the Fed showed on Tuesday, after collapsing by a record 15.5 per cent in April. Manufacturing, which accounts for 11 per cent of the U.S. economy, remains hobbled by supply-chain disruptions.

Cheaper crude oil has made oil and gas wells unprofitable, impacting demand for heavy equipment and machinery.

“We expect a gradual recovery over the next few years, with growth lagging that of the overall economy,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh. “One potential upside risk is if firms decide to shorten their supply chains because of the pandemic and the associated disruptions to global trade, moving manufacturing capacity back to the U.S.”

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Stocks on Wall Street rallied on the reports and data showing reduced COVID-19 death rates in a trial of a generic steroid drug. The dollar rose against a basket of currencies. Prices of U.S. Treasuries fell.

Excluding automobiles, gasoline, building materials and food services, retail sales surged 11 per cent in May after tumbling 12.4 per cent in April. These so-called core retail sales correspond most closely with the consumer spending component of the gross domestic product report.

Economists expect consumer spending, which accounts for more than two-thirds of U.S. economic activity, could decline at as much as a 37 per cent annualized rate in the second quarter. That could result in GDP falling at around a 36 per cent pace in that period.

Consumer spending contracted at a 6.8 per cent rate in the first quarter, the sharpest drop since the second quarter of 1980. The economy shrank at a 5 per cent pace in the January-March quarter, the deepest contraction since the 2007-2009 Great Recession.

Weak GDP this quarter was underscored by other data on Tuesday showing a tumble in business inventories in April.

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Ontario Introduces Legislation to Protect Public Health as Economy Reopens – Government of Ontario News

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Proposed Bill Would Provide Flexibility to Address the Ongoing Threat of COVID-19

TORONTO — Today, the Ontario government introduced proposed legislation that, if passed, would give the province the necessary flexibility to address the ongoing risks and effects of the COVID-19 outbreak. The proposed legislation is part of the government’s plan for the continued safe and gradual reopening of the province once the declaration of emergency ends.

Details about the proposed legislation were provided today by Premier Doug Ford, Christine Elliott, Deputy Premier and Minister of Health, and Solicitor General Sylvia Jones.

“If passed, the proposed legislation would allow us to chart a responsible path to economic reopening and recovery without putting all the progress we’ve made in fighting this virus at risk,” said Premier Ford. “Even as we continue certain emergency orders under the proposed legislation to protect public health, we will always be a government accountable to the people of Ontario. That’s why I will ensure ongoing updates are provided and that a report is tabled within four months of the anniversary of this proposed Act coming into force.”

“While the declaration of emergency may come to an end shortly, the risk posed by COVID-19 is likely to be with us for some time to come,” said Solicitor General Sylvia Jones. “This new legislation would provide the government with the necessary flexibility to ensure select tools remain in place to protect vulnerable populations, such as seniors, and respond to this deadly virus.”

The Reopening Ontario (A Flexible Response to COVID-19) Act, 2020 would, if passed, ensure important measures remain in place to address the threat of COVID-19 once the provincial declaration of emergency has ended. Specifically, the legislation would:

  • Continue emergency orders in effect under the Emergency Management and Civil Protection Act (EMCPA) under the new legislation for an initial 30 days.
  • Allow the Lieutenant Governor in Council to further extend these orders for up to 30 days at a time, as required to keep Ontarians safe.
  • Allow the Lieutenant Governor in Council to amend certain emergency orders continued under the EMCPA if the amendment relates to:
    • labour redeployment or workplace and management rules;
    • closure of places and spaces or regulation of how businesses and establishments can be open to provide goods or services in a safe manner;
    • compliance with public health advice; or
    • rules related to gatherings and organized public events.
  • Not allow new emergency orders to be created.
  • Allow emergency orders to be rescinded when it is safe to do so.

The ability to extend and amend orders under the new legislation would be limited to one year, unless extended by the Ontario legislature. Appropriate oversight and transparency would be ensured through regular, mandated reporting that provides the rationale for the extension of any emergency order. The legislation would include the same types of provisions on offences and penalties as set out under the EMCPA to address non-compliance with orders.

Quick Facts

  • The termination of the provincial emergency declaration under the EMCPA, or the passage of the proposed Act, would not preclude a head of council of a municipality from declaring under the EMCPA that an emergency exists in any part of the municipality or from continuing such a declaration.
  • The termination of the provincial emergency declaration under the EMCPA, or the passage of the proposed Act, would not preclude the exercise of the powers under the Health Protection and Promotion Act by Ontario’s Chief Medical Officer of Health or local medical officers of health.
  • The Government of Ontario declared a provincial declaration of emergency under s.7.0.1 of the EMCPA on March 17, 2020. The declaration has been extended under s.7.0.7 of the EMCPA and is in place until July 15, 2020, allowing the province to continue to make new emergency orders or amend existing orders under the EMCPA until that date.
  • On June 26, 2020, emergency orders then in effect that were made under section 7.0.2 of the EMCPA were extended to July 10.
  • A full list of current emergency orders in effect under the EMCPA can be found on the e-Laws website under the EMCPA and at Ontario.ca/alert.

Additional Resources

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William Watson: My hunch is the economy will bounce back quickly when this ‘Great Compression’ ends – Financial Post

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George Santayana meet Milan Kundera. Santayana (1863-1952) was the Spanish-born American philosopher most famous for saying: those who cannot remember the past are condemned to repeat it. Kundera (1929-) is a Czech-born French writer whose best-known work, “The Unbearable Lightness of Being,” holds that individual experience is “light” because it is not repeated. So its capacity to teach is limited. Which thinker, I wonder, is the best guide to the COVID economy?

The economists Robert Hall of Stanford University and Marianna Kudlyak of the San Francisco Federal Reserve Bank have recently discovered a remarkable regularity about the 11 postwar U.S. recessions: however high the unemployment rate rises it pretty much always declines at the rate of 0.85 percentage points per year.

In 2020, that is terrible news. As they write, with the unemployment rate about “nine percentage points above normal … it would take 11 years (nine divided by 0.85) to work off the pandemic’s bulge of unemployment as it currently stands.” (Granted, that was before the rate fell 2.2 points from May to June alone.)

The saving grace is that the current recession is like no other in American — or Canadian — history

We only just completed a long labour market recovery from the crash of 2008 (though we did complete it, with unemployment rates hitting long-term lows). No one wants another 10-year slog back to full employment. As three economists from the C.D. Howe Institute show elsewhere on this page, if the recovery does turn out to be slow, then in terms of accumulated lost output the current downturn will at least rival and may even “blow past” the other big recessions of recent memory (1982 and 1990).

The saving grace is that the current recession is like no other in American — or Canadian — history. (Take that, Santayana!) In fact it’s not so much a recession, with economic activity ebbing for reasons that often seem mysterious, as it is a compression. The Great Compression, you might call it. For reasons everyone understands though not everyone agrees with, the government hammered the economy shut for a couple of months by either literally outlawing many normal economic interactions or at least strongly discouraging them.

Will the recovery from such an unprecedented shutdown follow the pattern of previous recoveries (i.e., slow but inevitable) or will it go more quickly? My hunch is that when the compression does end the economy will bounce back relatively quickly. Hall and Kudlyak at least hold out that possibility, pointing to data showing that the overwhelming majority of today’s unemployed “anticipate being recalled to jobs from which they have been temporarily laid off, within the coming six months.” In the best-case scenario, these workers “return to their existing jobs rapidly without sacrificing their job-specific human capital” or going through the normal try-it-and-quit, try-it-and-quit search for a job that finally fits.

The last few data points from the U.S. are encouraging in this regard, with unemployment claims falling and employment and growth expectations rising faster than forecast.

What could go wrong? A second wave of the virus, obviously — though future lockdowns will be more targeted and therefore less costly economically.

Beyond that, there are three main problems.

First, the lucky among us have been working and earning as usual but spending less, either because things we like to spend on simply haven’t been available or because we fear our jobs are at risk, too. That creates a classic Keynesian problem of underconsumption. But figuring ways to encourage consumption shouldn’t be a problem for our tax policy people. Over the years they’ve devised all sorts of gimmicks to encourage this or that. Egging on ordinary consumption would be a novel challenge for them but one they can overcome. And it doesn’t require building new transportation systems or massive new solar arrays.

Second, we’ve got a structural problem: no one wants to fly, stay at hotels, ride the subway, dine out or go to movies or shows until doing so is safe again. There’s no Keynesian solution for that. The people in the affected industries either have to figure out ways to make it safe or find something else to do, whether for a time or for good. Travel agents, good with phones, could become contact-tracers. Pilots could operate heavy equipment. Chefs, projectionists, actors, salespeople and countless others? Jobs building infrastructure likely won’t help.

Our third big problem is government getting in the way. Relief money phases out too slowly. Infrastructure programs — probably the wrong answer anyway — take too long to come on line (they always do!). “Stimulus packages” get devoured by rent-seekers and the government’s pet projects.

With a leadership vacuum at the top the U.S. seems likely to have a ramshackle, unplanned recovery. But its first shoots are bright green and very promising. My bet is we in Canada take a much more scientific, planned and deliberate approach and, as a result, recovery takes a lot longer — especially if, looking down our noses at southern-state infection rates, we keep the border closed into the fall.

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Stocks slide from one-month high on economy jitters – BNN

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European stocks dropped from a one-month high as officials warned the economy will take longer to recover and Germany reported weaker-than-expected industrial data. U.S. futures slid and the dollar advanced.

All but one of the 19 industry groups in the Stoxx Europe 600 Index fell, with real estate and technology shares bearing the brunt of the selling. Bayer AG lost 5.5 per cent after its plan for handling future Roundup cancer claims hit a snag. Treasuries edged higher alongside most European bonds.

In Asia, Chinese stocks powered ahead for a sixth day, although at a slower pace. Iron ore futures jumped and the offshore yuan briefly strengthened through the 7 per dollar level for the first time since March.

Investors are catching their breath after a ferocious rally that pushed the Nasdaq Composite to a record high. While recent reports show that global economy could be past the worst of the slump, it’s a long road back to pre-crisis levels.

The European Commission gave its starkest warning yet about the impact of the pandemic, with the divergences between richer and poorer countries opening up even further than projected two months ago. Officials now forecast a contraction of 8.7 per cent in the euro area this year, a full percentage point deeper than previously predicted.

Here are some key events coming up:

  • The EIA crude oil inventory report comes Wednesday.
  • All eyes will be on the U.S. weekly jobless claims report on Thursday.
  • Singapore holds its general election on Friday.
  • Rate decisions in Australia and Malaysia Tuesday.

These are the main moves in markets:

Stocks

  • Futures on the S&P 500 Index declined one per cent as of 10:45 a.m. London time.
  • The Stoxx Europe 600 Index sank 1.1 per cent.
  • The MSCI Asia Pacific Index declined 0.7 per cent.
  • The MSCI Emerging Market Index sank 0.7 per cent.

Currencies

  • The Bloomberg Dollar Spot Index jumped 0.5 per cent.
  • The euro decreased 0.4 per cent to US$1.1266.
  • The British pound fell 0.2 per cent to US$1.2469.
  • The onshore yuan weakened 0.1 per cent to 7.025 per dollar.
  • The Japanese yen weakened 0.4 per cent to 107.73 per dollar.

Bonds

  • The yield on 10-year Treasuries declined one basis point to 0.67 per cent.
  • The yield on two-year Treasuries climbed less than one basis point to 0.16 per cent.
  • Germany’s 10-year yield declined one basis point to -0.44 per cent.
  • Britain’s 10-year yield fell one basis point to 0.192 per cent.
  • Japan’s 10-year yield increased one basis point to 0.046 per cent.

Commodities

  • West Texas Intermediate crude sank 1.5 per cent to US$40.04 a barrel.
  • Brent crude fell 1.2 per cent to US$42.60 a barrel.
  • Gold weakened 0.5 per cent to US$1,776.29 an ounce.

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