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We’re Failing to Rescue the Economy – Slate



A drive-thru emergency food distribution site in Las Vegas.

David Becker/AFP via Getty Images

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America’s economic response to the coronavirus crisis does not appear to be going very well.

Consider what the CARES Act, which Congress passed in late March, was actually designed to accomplish. First, it tried to limit layoffs by offering businesses loans and grants so they could keep workers on payroll during the pandemic lockdown.

Second, the legislation promised to give people financial help, especially if they lost their jobs. There were checks for the middle class, as well as generous new federal unemployment benefits of $600 per week.

We are only partially achieving either of these goals—at best. Just over a month has gone by since the relief bill passed, and millions of people are still ostensibly losing their jobs each week. Meanwhile, many of the unemployed still haven’t gotten any aid, in part because the creaky systems that underpin our safety net weren’t built to work this fast. We don’t know exactly how bad the situation is, because the crisis is developing quicker than our official economic data can track it, and some of the numbers we have are a bit open to interpretation. There are also some faint glimmers of hope in the numbers we do have. But overall, the available facts are not reassuring.


Start with the layoffs. Americans filed 3.8 million unemployment claims last week, the Department of Labor reported Thursday, pushing the grand total to more than 30 million over the course of this crisis. Mercifully, the number of new claims has fallen each week since peaking above 6.8 million at the end of March. But even so, millions of people still appear to be getting laid off or furloughed weeks after the government revved up efforts like the Paycheck Protection Program that were supposed to prevent that from happening.

It is possible that fewer Americans have lost work than the unemployment claims make it seem, because many people have been required to apply for benefits more than once. In some states, workers who were not traditionally eligible for unemployment insurance but were made so by the CARES Act—like the self-employed—have to file for state unemployment first, get denied, then file again for federal help. That bureaucratic merry-go-round could be inflating the stats a bit. (Just to make things more confusing, I’m told that the applications for federal unemployment benefits weren’t supposed to be included in the regular state claims data this week, yet might have been anyway. Sigh.)

But if anything, it seems more likely that the unemployment insurance numbers are actually understating the extent of layoffs. First, there are a lot of people out there who have tried to file but haven’t been able to thanks to crashing websites and overwhelmed phone lines. A survey by the Economic Policy Institute found that as of mid-April, for every 10 people who said they’d successfully filed an unemployment claim, “three to four additional people tried to apply but could not get through the system to make a claim.” All of those stories you’ve read (or experienced firsthand) about people calling up their state unemployment office hundreds of times to no avail? They’re real, and they may be hiding the true depth of our crisis.

Second, economists Alexander Bick of Arizona State University and Adam Blandin of Virginia Commonwealth University have estimated that the U.S. actually shed 34 million jobs by mid-April. They did so based on a survey designed to replicate the official unemployment report that the Department of Labor releases each month, albeit with a smaller sample (the government’s version isn’t due out until next week). In short, there’s a good chance things really are at least as bad as they look, and we could be facing an unemployment rate of 16 to 18 percent.


That wouldn’t necessarily be a disaster right now, if people were promptly receiving the aid Congress set aside to help them pay for their basic expenses while the economy is in deep freeze. But there are good reasons to worry that they are not.

The unfortunate truth is that, right now, we can’t say for sure how many people have actually gotten an unemployment check because the data just aren’t up to date. But the information we have doesn’t look great. Based on the Department of Labor’s detailed monthly financial stats, we know that states received 11.7 million initial jobless claims in March, but only sent 1.67 million people their first payment. Based on the department’s less detailed weekly releases that now ruin everybody’s Thursday, we know that by April 18 states had reported just under 18 million “continuing claims” from individuals who had at least been approved for benefits but had not necessarily received a check yet. That’s out of the 25.6 million initial unemployment claims that had been filed at that point. It’s hard to know exactly how many people are still waiting for their money, but a fair guess is “a lot.”

As for the direct payments, the Trump-signed checks in the mail? They’ve been a bit slow to arrive, at least for anybody who didn’t have direct deposit information on hand with the IRS. As of April 28, the agency reported that it had delivered 89.5 million payments out of more than 150 million that will need to be sent out—and which many families still won’t receive for months.

There are some glimmers of hope in the data. One interesting development is that the number of net new continuing unemployment claims—again, the people who’ve been approved for benefits and may be receiving them already—has been shrinking in the past few weeks. That suggests state unemployment agencies are either working through their backlog of applications or that people are being rehired out of unemployment back to their old jobs.


It’s also possible that a lot of people who are waiting on unemployment have already gotten their relief payment from the IRS and that’s helping to tide them over. Likewise, some people who still haven’t received a check might have been approved for those $600-a-week jobless benefits already. Congress threw a lot of money at the wall. And it may be that for most people, some of it has stuck. Things could get better in the coming weeks as states and the feds continue ironing out the administrative kinks in these programs.

Overall, though, it still looks like our pandemic response has failed to prevent a historically rapid rise in unemployment or promptly get cash to a lot of the people who need it immediately—or both. We’re in a crisis. And we’re barely even muddling through.

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'No-deal' Brexit threat looms over pandemic-ravaged UK economy –



The threat of a no-deal Brexit is back — and with it the risk that the U.K. economy’s shaky recovery from the coronavirus pandemic will be hobbled.

As British and European Union negotiators head into the last round of talks scheduled before a key summit this month, chances are growing that the U.K. will end the post-Brexit transition period on Dec. 31 without a free trade agreement in place — spelling turmoil for businesses.

Instead of postponing its final parting with the bloc because of the coronavirus, the U.K. government has so far ruled out any delay. That may be, critics say, because Brexiters calculate the cost of leaving without a deal will be obscured by the far more extensive damage wreaked by the virus.

To Sanjay Raja, an economist at Deutsche Bank AG, a no-deal Brexit would halve the pace of growth next year to 1.5 per cent. The U.K. in a Changing Europe, a research group, estimates gross domestic product could be crimped by eight per cent over 10 years as trade barriers and a reduction in productivity hit output.

“It may be less politically costly for the U.K. to do no deal in the midst of a pandemic, but economically I’m not sure about that at all,” said Jonathan Springford, deputy director of the Centre for European Reform. “It might be that they’re able to get away with it — but I don’t think it changes the view that no deal would impose quite sizable economic costs.”

Citigroup Inc. says the size of the shock could even force the Bank of England to take the controversial move of cutting interest rates below zero because fiscal policy and other tools may not be enough.

Companies now have to think of how to prepare for Brexit while dealing with the fallout from coronavirus. Many are shuttered, indebted and struggling to pull through the lockdown.

The additional debt firms are carrying will make adjusting to Brexit more difficult, according to Alan Winters, director of the U.K. Trade Policy Observatory at the University of Sussex.

The re-introduction of trade barriers with the EU and changes to trading relationships with other countries will require a major re-orientation of exports, he wrote late in May. Heavily indebted firms are less likely to invest in developing new export markets.

“It’s a tense conversation at the moment,” said Allie Renison, head of Europe and trade policy at the Institute of Directors. “Companies are struggling with their survival, and there’s not a narrative yet from government saying to prepare, but they are saying the transition is ending.”

While both the U.K. and the EU insist a deal is still their preferred outcome, the deadlocked talks and the limited time left available mean risk no agreement will be reached is rising: analysts at Eurasia Group now put the odds of that outcome at 55%. EU Trade Commissioner Phil Hogan told RTE last month that the U.K. “can effectively blame Covid for everything.”

If the sides can’t strike a deal by the year-end, the U.K. will default to trading with the bloc on terms set by the World Trade Organization. That means British manufacturers of goods such as cars, pharmaceuticals, plastics, and precision tools could face new costs and significant disruptions to their just-in-time supply chains in Europe.

For Patrick Minford, chair of the pro-Brexit group Economists for Free Trade, leaving on anything but WTO terms would mean Britain would “lose the gains of free trade with the rest of the world.” It’s also better that the U.K. stays out of the EU’s expensive coronavirus recovery plan, he said. “When you add them both up, it’s pretty serious, really, and we’re much better off leaving.”

The fracturing of supply chains due to the coronavirus is one wake-up call to the upheaval that could be on the way. More than 80% of small and medium-sized manufacturers say the pandemic has affected their supply chains, and while some say contingency plans for Brexit have proved useful in preparing for the situation, others are facing shortages.

The pandemic has also led to discussion of bringing supply chains closer to home, particularly as the U.K. struggled to fly in emergency supplies while factories were closed and most workers stayed away.

U.K. Cabinet Office minister Michael Gove last week touted the “phenomenon of re-shoring” and said “we’re seeing how countries can increase resilience.”

But moves to shorten supply chains further could likely lead to goods becoming more expensive, according to Springford of Centre for European Reform. What is more, the U.K.’s geographical proximity to the EU means it’s likely to stay an important trade partner.

Philip Hammond, a former U.K. finance minister who campaigned to stay in the bloc, said last week that the government should at least seek a temporary trade deal to protect jobs.

Since the U.K. is such an open economy, “we will be more exposed than most developed economies to any headwinds in international trade during the recovery,” he said. “We really can’t afford to layer on top of that, during a very difficult recovery period, a sort of self-inflicted shock.”

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Global shares gain on hopes for regional economies reopening – CTV News



Global shares are higher Tuesday on optimism about moves to reopen economies from shutdowns to contain the coronavirus pandemic.

France’s CAC 40 jumped 1.9% in early trading to 4,851.37, while Germany’s DAX surged 3.2% to 11,961.53. Britain’s FTSE 100 added 0.9% to 6,219.95. U.S. shares were set to climb with Dow futures gaining 0.4% to 25,576.00. The S&P 500 future contract added 0.4% to 3,064.88.

Investors have been balancing cautious optimism about the reopening of businesses against worries that widespread protests in the U.S. over police brutality could disrupt the economic recovery and widen the virus outbreak.

Japan’s benchmark Nikkei 225 rose 1.2% to finish at 22,325.61, and Hong Kong’s Hang Seng gained 0.8% to 23,912.07. South Korea’s Kospi added 1.1% to 2,087.42. Australia’s S&P/ASX 200 rose nearly 0.3% to 5,835.10, while the Shanghai Composite edged up 0.1% to 2,918.94.

In Southeast Asia, where shutdowns are beginning to ease, Indonesia’s benchmark jumped nearly 2.0% and Singapore’s surged 2.3%.

Despite the bright mood across the region, fears persist about a possible resurgence in coronavirus outbreaks.

There were 34 new confirmed cases in Tokyo on Tuesday, seeming to reaffirm growing risks as people begin to mingle more in crowded commuter trains with the reopenings of more offices, schools, restaurants and stores. The daily numbers had dropped below 20 recently.

Critics had said Japan’s relaxation of its pandemic precautions was premature, and Japanese media reported that Tokyo Gov. Yuriko Koike plans to announce a “Tokyo Alert” requesting residents of the capital to try harder at social distancing.

Despite such concerns and the widespread unrest erupting in many U.S. cities, hopes for a quick recovery from the worst global downturn since the 1930s have spurred recent rallies.

The protests that have rocked American cities for days have so far not had much impact on financial markets. But the violence and damage to property may hinder the re-opening of the economy. Crowds gathering to protest injustice and racism also could touch off more outbreaks.

But Robert Carnell, regional head of research for the Asia-Pacific region at ING, warned against too much optimism.

“How long can markets remain buoyant?” he asked. “The honest answer, and one that may save you five minutes is, `I don’t know.’ “

This week will provide market watchers more insight on the impact that the coronavirus is having on U.S. workers and employers. Payroll processor ADP issues its May survey of hiring by private U.S. companies on Wednesday. The next day, the government releases its weekly tally of applications for unemployment aid.

On Friday, the government reports its May labour market data. Analysts surveyed by FactSet expect the report will show the economy lost 9 million jobs last month.

In other trading, benchmark U.S. crude oil added 42 cents to US$35.86 a barrel in electronic trading on the New York Mercantile Exchange. It fell 5 cents to $35.44 a barrel on Monday. Brent crude oil, the international standard, gained 59 cents to $38.91 a barrel.

The U.S. dollar rose to 107.72 Japanese yen from 107.58 yen. The euro climbed to $1.1158 from $1.1136.

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Australia central bank sees glimmer of hope as economy restarts after pandemic shutdown – The Guardian



By Swati Pandey

SYDNEY (Reuters) – Australia’s central bank held rates at all-time lows on Tuesday and sounded less gloomy as the economy gradually re-opens during what is likely to be the worst quarter since the Great Depression.

The Reserve Bank of Australia (RBA) left rates at 0.25% at its monthly policy meeting in a widely expected decision, and said the “accommodative approach will be maintained as long as it is required.”

In a short post-meeting statement Governor Philip Lowe said the RBA was prepared to scale up government bond purchases if needed to ensure three-year yields held around 25 basis points.

Australia’s A$2 trillion ($1.4 trillion) economy is experiencing its biggest contraction since the 1930s in the current quarter but “it is possible that the depth of the downturn will be less than earlier expected,” Lowe added.

A significant decline in new infections, earlier-than-expected easing of restrictions and signs that hours worked stabilised in early May auger well for a recovery.

“There has also been a pick-up in some forms of consumer spending,” Lowe added.

States and territories across Australia have been easing social distancing regulations at differing paces in recent weeks, slowly ending a partial lockdown ordered in March, having largely contained the COVID-19 pandemic.

Australia, which has about 7,200 coronavirus cases, has not reported a death from the disease for more than a week.

The country’s success in containing the virus has sent the Aussie dollar soaring to five-month highs. Yet, that is leaning against monetary stimulus and won’t be welcome by the RBA.

The central bank made no mention of the exchange rate in the statement.

Highlighting the depth of the pandemic-driven global economic downturn and the fallout on Australia, many economists expect interest rates to remain at record lows for at least two more years.

Some are even predicting negative interest rates, though Lowe has ruled it out.

“While we have also become more optimistic about the outlook for the economy in recent weeks, we still expect the unemployment rate to jump to nearly 9% by Q3,” said Capital Economics analyst Marcel Thieliant.

He expects the central bank to announce an expansion of its government bond buying programme at its August policy meeting.

“And we only expect the unemployment rate to fall below 7% by 2022. That would leave it far above the RBA’s estimate of the natural rate of 4.5%, underlining that the RBA will miss its full employment mandate for years to come.”


Official data out earlier showed Australia boasted a record current account surplus last quarter as firm export prices and a fall in imports provided a timely boost to growth.

Other data out on Tuesday showed government spending also added to growth in the March quarter, while companies reported better sales and profits than many expected.

The figures led analysts to upgrade their forecast for first-quarter gross domestic product due Wednesday with some saying the economy might not have shrunk in the quarter as previously feared.

GDP had been forecast to show output contracted 0.3%, the first fall since early 2011.

“A small positive print cannot be ruled out,” said Su-Lin Ong, chief economist at RBC Capital Markets.

“But the likely collapse in activity in the current quarter and accompanying impact on the labour market…is a sharp and deep shock through the whole economy with likely lasting ramifications.”

(Reporting by Swati Pandey; Editing by Shri Navaratnam)

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