Newsletter: It’s Going to Be Ugly

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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.

A historic GDP report is due out today. We’ll have a special edition of the newsletter after the numbers are out. First, Jeff Sparshott here with the latest on the economy.

Breaking Bad

The U.S. economy is set to officially record its steepest quarterly contraction since World War II, and early signs of recovery look uneven as the country faces a summer surge in coronavirus cases. Economists surveyed by The Wall Street Journal project second-quarter U.S. gross domestic product fell at a seasonally adjusted annual rate of 34.7% from April through June. The annualized rate overstates the severity of the drop in output because it assumes the quarterly pace continues for a year, something forecasters don’t expect to happen. The GDP report is likely to show the deep hit to consumer and business spending from lockdowns, social distancing and other initiatives aimed at containing the virus. States in May started reopening their economies—leading to partial rebounds in jobs and spending—though a number of them have put fresh restrictions in place because of the infection increase, Harriet Torry reports.

While the economy is expected to grow in the third quarter—possibly at a record pace—a surge in virus infections that started in mid-June appears to be slowing the recovery in some states. That’s reflected in the labor market. The U.S. Census Bureau said in its latest weekly Household Pulse Survey that 51.1% of households experienced a loss of employment income in the week ended July 21, up from 48.3% four weeks ago.

WHAT TO WATCH TODAY

U.S. gross domestic product for the second quarter is expected to fall at a 34.7% pace from the prior quarter. (8:30 a.m. ET)

U.S. jobless claims for the week ending July 25 are expected to tick up to 1.45 million from 1.416 million a week earlier. (8:30 a.m. ET)

Japan’s preliminary industrial production report for June is out at 7:50 p.m. ET.

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

TOP STORIES

Situational Awareness

Federal Reserve Chairman Jerome Powell said the U.S. economy faces a long road to recovery that will require greater public vigilance to prevent the spread of the coronavirus pandemic and more spending from Congress and the White House. Fed officials didn’t announce new policy steps at the conclusion of their two-day meeting Wednesday and reiterated their pledge to maintain aggressive measures to support the economy, Nick Timiraos reports.

“The path of the economy is going to depend to a very high extent on the course of the virus, on the measures that we take to keep it in check. That is just a very fundamental fact about our economy right now.” —Fed Chairman Jerome Powell

It’s not just the U.S. economy setting records. Germany posted its largest decline in output since the beginning of GDP calculations in 1970. The 10.1% drop isn’t completely analogous to U.S. figures—Germany doesn’t annualize—but it does show the severe contraction. “The worst quarter ever could be followed by the best quarter ever. However, the rebound will be uneven,” said ING economist Carsten Brzeski.

Slash, Burn, Rebuild

Boeing outlined plans to slash more production and jobs and look for other ways to conserve cash as the coronavirus pandemic deepens its toll on the global aviation industry. Plans to become smaller will leave the Chicago-based aerospace giant increasingly reliant on its defense business for cash and likely ripple through its vast supplier network, their workforces and the broader U.S. economy, Doug Cameron and Andrew Tangel report.

  • Airbus said it doesn’t expect to start increasing aircraft production again until around 2022. The European plane maker, which cut its production rates by a third in April, said Thursday it would again reduce the output of its A350 wide-body from six aircraft a month to five, Benjamin Katz reports.

General Motors posted a $758 million second-quarter net loss mostly due to factory shutdowns in its home U.S. market. The company said its U.S. plants are cranking into overdrive to replenish thinly stocked dealership lots, a sign that its bottom line could rebound in coming quarters as the company tries to make up for weeks of lost production this spring from the pandemic. GM said nearly all its U.S. factories are running at prepandemic levels, Mike Colias reports.

Fast-food restaurants are responding to changing consumer tastes during the coronavirus pandemic in ways that have boosted profits at some chains to where they were before the health crisis or even higher. Some restaurants are focusing on expanding their takeout and drive-through businesses, while others are betting on delivery services. Many fast-food chains brought down staffing levels and cleaning costs by closing their dining rooms, and aren’t in a rush to reopen them, Nina Trentmann and Mark Maurer report.

A Matter of Antitrust

The chief executives of Amazon.com, Facebook, Apple and Google faced relentless criticism at a congressional hearing Wednesday, with Democrats and Republicans alike challenging their business practices over more than five contentious hours. The session, conducted via videoconference because of the coronavirus pandemic, laid bare deep-rooted frustration with some of the country’s most successful companies, at a moment when Americans rely on them more than ever. It also highlighted the threat to the companies from ongoing investigations by antitrust authorities, with lawmakers citing internal company emails and witness interviews as evidence that the platforms improperly abuse their dominant position, Ryan Tracy reports.

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WHAT ELSE WE’RE READING

Fed Chairman Jerome Powell Wednesday was asked about a recent blog post from former Fed economist Claudia Sahm. Key passage: “Economics is a disgrace. The lack of diversity and inclusion degrades our knowledge and policy advice. We hurt economists from undergraduate classrooms to offices at the White House. We drive away talent; we mistreat those who stay; and we tolerate bad behavior.” The post details episodes of harassment and mistreatment of women and minority economists in a host of settings, including the Fed.

Mr. Powell said he hadn’t read the post but responded: “I think it’s fair to acknowledge that there’s been a lot of pain and injustice and unfair treatment that women have experienced in the workplace, not just among economists but among economists and at the Fed. That’s been going on for far too long. And you know, like every other organization, the Fed could have done more and should have done more.”

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