Newsletter: How Will Consumers Respond to New Coronavirus Cases?

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This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

One Step Forward…

Americans cautiously returned to the marketplace last month, helping the economy slowly dig out from a severe recession. Household spending on goods and services rose a record 8.2% in May, more than double the prior all-time high in records dating from 1959. The report boosted hopes that a good portion of consumers are eager and able to spend despite historically high unemployment. But it also showed just how far the economy has to go to recover from a deep recession—consumer spending remained down 12% from pre-lockdown levels, Josh Mitchell reports.

One step back: A new rise in coronavirus infections threatens the nascent recovery. Cases continued to surge over the weekend. Florida, Texas, California and Arizona have accounted for much of the recent rise, prompting authorities to impose new restrictions in those states and retreat on reopening plans.

WHAT TO WATCH TODAY

Germany’s provisional consumer price index for June is out at 8 a.m. ET.

U.S. pending home sales for May are expected to rise 15% from a month earlier. (10 a.m. ET)

The Dallas Fed’s manufacturing survey for June is out at 10:30 a.m. ET.

San Francisco Fed President Mary Daly speaks at a higher education conference at 11 a.m. ET, and New York Fed President John Williams moderates a panel discussion with IMF Managing Director Kristalina Georgieva at 3 p.m. ET.

Japan’s preliminary industrial production figures for May are out at 7:50 p.m. ET.

China’s official manufacturing index for June is out at 9 p.m. ET.

TOP STORIES

Austin City Limits

States across the Southern and Western U.S. are reporting record hospitalizations for Covid-19, the disease caused by the new coronavirus, prompting some to reconsider plans to ease economic restrictions. On Friday, Texas did just that. Gov. Greg Abbott, a Republican, ordered bars to close and gave restaurants three days to reduce their dining-room capacity to 50%. Austin, where the number of people hospitalized with Covid-19 has roughly doubled during the past nine days, has offered a window into the challenges and tensions that come with trying to restart an economy during a pandemic. Residents in the state capital were eager for a return to normalcy. But returning to prepandemic routines has proved slow and now some businesses are being forced to shut down or reduce their capacity again, Kim Mackrael and Elizabeth Findell report.

Coronavirus caseloads appear to be affecting consumer confidence—and potentially willingness to spend. The University of Michigan’s consumer sentiment index picked up from May to June, led by a record increase in the Northeast. Residents are “apparently expecting the later and more gradual reopening to produce at worst a negligible increase in infections,” said survey economist Richard Curtin. Gains in the South and West were muted.

Confidence in government economic policies, meanwhile, fell to its lowest level since President Trump entered office.

Business and consumer sentiment in Europe perked up this month. The European Commission’s Economic Sentiment Indicator registered its sharpest monthly increase on record in June. Since May, the index has recouped less than one-third of the losses from March and April.

Outlook: Uncertain

Banks have pulled back sharply on lending to U.S. consumers during the coronavirus crisis. One reason: They can’t tell who is creditworthy anymore. Millions of Americans are out of work and behind on their debts. But, in many cases, the missed payments aren’t reflected in their credit scores, nor are they uniformly recorded on borrowers’ credit reports. The confusion stems from a provision in the government’s coronavirus stimulus package. The law says lenders that allow borrowers to defer their debt payments can’t report these payments as late to credit-reporting companies. Now, lenders that are having a tough time spotting risky loan applicants are approving fewer borrowers for credit cards, auto loans and other consumer debt, AnnaMaria Andriotis reports.

More than 40% of the companies in the S&P 500 have pulled their guidance. Many cite the overall uncertainty of the pandemic for their tentativeness, but some point to the likelihood of additional outbreaks, evolving consumer habits and levers such as the need to boost pay for front-line workers, Allison Prang reports.

Delta Air Lines will send notices to over 2,500 pilots warning of potential furloughs as travel demand is still languishing due to the coronavirus pandemic, the airline wrote in a letter Friday. John Laughter, Delta’s senior vice president of flight operations, told pilots recovery may be at least two years away and early retirements alone likely won’t be enough to avoid furloughs, Alison Sider reports.

Chesapeake Energy filed for bankruptcy protection Sunday as an oil- and gas-price rout stoked by the coronavirus pandemic proved to be the final blow for a shale-drilling pioneer. Chesapeake is the latest debt-laden U.S. oil and gas producer to file for bankruptcy, as a coronavirus-induced economic slowdown saps demand for fossil fuels. More than 200 shale companies may file for bankruptcy over the next two years if oil- and-gas prices stay around current levels, Rebecca Elliott reports.

Public Transit Use Associated With Higher Coronavirus Death Rates

African-Americans may be dying at higher rates than white people from Covid-19 in part because of black people’s heavier reliance on public transportation for commuting, two new studies by economists suggest. One of the studies, by University of Virginia economist John McLaren, found that the racial discrepancy remained even after controlling for income or insurance rates. Instead, Mr. McLaren found the gap was due in part to the fact that black workers are more likely to get to work via public transit, including subways and buses, David Harrison reports.

WHAT ELSE WE’RE READING

Where is Covid-19 landing hardest? “We find that urban areas, majority-minority communities, and low-income communities have been impacted markedly more than other communities. Delving deeper, we find that the higher incidence of Covid-19 cases and deaths in urban areas is due to their higher population density. Controlling for population density, we find that urban areas are likely to have lower case and death rates. This may be due to better medical care facilities (hospitals, doctors, medical equipment) and better/easier availability of essential commodities and services,” New York Fed economists Rajashri Chakrabarti and William Nober write at Liberty Street Economics.

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